UC-NRLF 


J^miaitfiDucmoN 


LIBRARY 

OF  THE 

UNIVERSITY  OF  CALIFORNIA. 
%ecewed         JAN  12   1893  .  ,^9  f 

•Accessions  No. ^P^O     .  Class  No. 


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AN 


Alphabet   in   Finance 


A    SIMPLE    STATEMENT    OF    PERMANENT 

PRINCIPLES  AND  THEIR  APPLICATION 

TO  QUESTIONS  OF  THE  DAY 

BY 

GRAHAM    McADAM 


WITH     INTRODUCTION 

BY 

R.  R.  BOWKER 


^4^^  OP  THE 

[TJSI7BIISITT1 


NEW     YORK 

G.     P.     PUTNAM'S     SONS 
27  AND  29  West  23d  Street 
1884. 


,^ti 


6  crxr/o 

IJOrVRIGHT, 

O.    P.    PUTNAM'S    SOVS 


>^   OV  THE 

^UNIVERSITY] 

INTRODUCTION, 


HIS  little  book,  it  may  be  more  fitting  for 
me  than  for  the  author  to  say,  has  been 
written  as  a  political  duty.  This  idea  of 
duty,  far  removed  as  it  is  from  partisanship, 
is  based  on  a  political  taith  which  may  be  briefly 
set  forth. 

Most  men  have  fair  common  sense,  that  is,  the 
power  to  make  a  right  judgment  on  simple  questions 
clearly  presented.  Most  men  have  also  common 
honesty,  that  is,  the  will  to  act  as  their  judgment  tells 
them  is  right.  These  are  the  chief  grounds  of  faith 
in  democracy — that  men,  according  to  their  light,  are 
given  to  think  rightly  rather  than  to  think  wrongly 
and  glad  to  do  right  rather  than  to  do  wrong. 

It  is  on  such  political  optimism  that  our  theory 
of  government  is  based,  nor  is  any  system  of  govern- 
ment, or  social  machinery  of  any  sort,  possible,  ex- 


IV  AN  ALPHABET  IN  FINANCE. 

cept  with  some  belief  in  humanity.  Every  organi- 
zation pre-supposes  true  men,  somewhere. 

Yet  it  is  true  that  the  number,  especially  of  edu- 
cated men,  who  unwillingly  harbor  growing  doubts 
of  democracy,  is  sadly  on  the  increase  among  us.  I 
venture  to  say  that  this  very  despondency,  and  con- 
sequent inactivity,  is  the  source  of  their  infidelity ; 
it  is  their  fault,  rather  than  the  fault  of  "democ- 
racy," that  they  have  lost  faith. 

Democracy  has  not  always  meant  universal  suf- 
frage, but,  practically,  it  means  so  to-day.  It  re- 
quires of  every  man  that  he  shall  do  his  duty,  his 
duty.  It  is  bad  for  the  ignorant,  or  the  vicious,  to 
do  ill ;  but  it  is  worse  for  the  educated,  or  the  hon- 
est, to  do  nothing.  The  political  pessimists,  if 
they  still  mean  to  be  good  Americans,  now  pin  their 
doubtful  faith  upon  educated  suffrage.  To  them 
universal  suffrage  is  only  a  count  of  noses,  another 
form  of  that  decision  by  lot  which  was  of  old  the 
vox  Dei.  If  this  is  anywhere  true,  it  is  true  not 
because  of  the  ignorant,  but  because  of  the  educated  4 
not  because  the  people  would  not  learn,  but  because 
the  teachers  would  not  teach.  It  is  to  the  educated 
citizen,  indignant  at  the  demoralization  of  "  democ- 
racy" — which  he  looks  upon  as  something  apart  from 
himself— that  we  must  cry  out :  "  thou  art  the  man." 


IN  TROD  UCTION.  V 

For  to  say  that  most  men  wish  to  think  rightly 
and  to  do  right,  is  to  assert  their  desire  for  the  basis 
of  right  thinking  and  right  doing,  their  willingness 
"  to  listen  to  reason."  They  require  enlightenment, 
information,  and  this  must  come  from  those  trained, 
each  in  his  degree,  to  require  and  to  give  it.  The 
sense  for  leadership  is  a  part  of  human  nature — 

"  There's  nothing  naen  so  crave  as  leadership." 

Men  naturally  **  look  up,"  as  each  man  knows  from 
his  own  tendency,  to  those  qualified  to  guide,  and  are 
willing  to  be  led  in  directions  which  they  are  shown 
are  the  right  directions.  So  strong  is  this  sense, 
indeed,  that  right  leaders  wanting,  men  are  prone 
to  follow  any  who  offer.  Universal  suffrage,  then, 
when  the  several  elements  do  their  respective  duties, 
is  not  a  count  of  noses,  but  a  balancing  of  brains — 
in  which,  provided  "  brains  "  acts  as  well  as  thinks, 
(for  "  knowledge  is  power  "  only  when  knowledge 
goes  to  work,)  intelligence  and  righteousness  are  sure 
to  tell  in  the  long  run.  Our  government  provides 
that  all  men  shall  be  equal,  in  opportunity,  so  far  as 
human  institutions  can  make  it  possible ;  there  is  a 
higher  law  of  equality  which  ordains  that  responsi- 
bility shall  be  equal  to  privilege,  and  requires  the 
most  from  those  most  gifted  or  best  trained.     De- 


VI  AN  ALPHABET  IN   FINANCE. 

mocracy  is  thus  an  army  officered  by  nature,  in  which 
the  sword-voice  of  the  general  may  equal,  by  his  in- 
spiration, the  bullets  or  ballots  of  the  thousand  men 
behind  him.  Yet,  after  all,  it  is  the  body  of  the 
people  who  are  the  final  reliance  :  we  speak  accu- 
rately of  the  great  court  of  the  people. 

It  is  in  this  way  that  the  voice  of  the  people  is  the 
voice  of  right.  In  this  great  assemblage,  each  man 
must  fulfil  his  function,  not  as  a  part  of  one  class 
teaching  another  class, — for  in  our  country,  and  es- 
pecially under  our  system  of  popular  education, 
there  can  be  no  lines  of  demarcation  sufficiently  stable 
to  define  classes — but  as  receiving  from  his  neighbor 
on  the  one  side  and  imparting  to  his  neighbor  on 
the  other.  If  the  educated  refuse  to  fulfil  their  func- 
tion under  universal  suffiage,  it  is  difficult  to  see  why 
they  may  be  expected  to  do  their  duty  under  edu- 
cated suffiage.  The  voters  who  would  be  excluded 
under  an  educational  test  are,  at  the  most,  a  small 
minority  in  this  country,  and  an  aristocracy  of  igno- 
rance, holding  a  permanent  balance  of  power,  is  a 
contradiction  of  terms. 

Doubtless  there  are  many  discouragements,  espe- 
cially in  our  large  cities, — which,  with  the  unassimi- 
lated  population  thrown  upon  the  polls  by  too  hasty 
naturalization  acts,  present  many  difficult  problems,— 


INTRODUCTION.  Vll 

against  any  attempts  of  the  best-fitted  toward  re- 
gaining that  lapsed  influence  in  the  state  which  the 
scheme  of  democracy  pre-supposes.  But  it  is  the 
educated,  who  can  read  history  arid  verify  progress, 
who  should  have  the  pluck  to  work  and  wait,  each 
for  himself — to  work  faithfully  and  to  wait  hopefully. 
Any  one  man  can  do  a  great  deal  only  by  holding 
out  a  great  while, — but  by  and  by  an  army  will  be 
standing  shoulder  to  shoulder  with  him.  And  each 
one  who  has  done  any  part  of  his  duty  to  his  neigh- 
bor knows  from  his  own  experience  that  those  about 
him  in  humbler  spheres,  such  as  our  immigrant 
class,  look  up  to  his  helpfulness  cordially  and  are 
glad  to  accept  what  is  wholesome  in  his  influence, 
provided  he  gives  it  not  like  a  prig  but  like  a  man. 

The  political  safety,  then,  is  that  the  people  should 
understand  issues,  should  form  right  judgments,  and 
should  vote  honestly  according  to  those  judgments. 
To  assure  the  latter,  to  prevent  undue  temptation 
that  by  easy  processes  of  corruption  shall  turn  rea- 
sonably honest  men  into  dishonest  ones,  is  the  object 
of  civil  service  reform,  which  must  be  backed  up  by 
a  public  opinion  that  shall  make  "  he  has  betrayed 
his  trust ! "  only  less  a  social  brand  than  "  he  has 
been  a  state  prison  convict !  "  But  not  less  impor 
tant  is  the  work  of  bringing  issues  clearly  within  the 


VIU  AN  ALPHABET  IN  FINANCE. 

comprehension  of  all  the  people.  We  did  not  need 
Herbert  Spencer  to  teach  us,  (although  no  one  has 
proved  it  so  thoroughly  as  he,)  that  the  most  com- 
plex subjects  resolve  themselves  into  simple  elements 
before  a  sufficient  analysis.  Nowhere  is  this  simpli- 
fication more  possible,  and  more  needed,  than  in  the 
perplexing  questions  of  finance  now  before  the 
American  people.  Properly  treated,  they  are  seen  to 
resolve  themselves  into  matters  of  every  day  experi- 
ence. 

We  have  had  so  many  nostrums  in  finance,  so 
many  "new  plans"  for  resumption,  that  it  is  no 
wonder  the  public  turns  away  discouraged  from  all 
debate  on  the  subject.  What  is  wanted  is  not  nos- 
trums,— our  no\\ox\.^  each  different,  but  such  investiga- 
tion of  the  subject  as  will  bring  out  the  natural  basic 
principle  on  which  the  issue  must  be  permanently 
decided.  The  present  book  presents  no  new  plan  for 
resumption  :  it  does  seek  to  find  what  is  the  natural 
method.  As  its  author  writes,  in  a  personal  letter, 
which  I  may  quote : — 

"  I  have  made  no  new  discoveries,  developed  no 
new  laws,  added  not  a  jot  to  the  history  or  science 
of  money.  The  only  originality  is  in  the  manner  of 
putting  things,  and  a  considerable  trial  of  this  man- 
ner during  the  last  two  years  has  brought  me  rea- 


INTRODUCTION.  IX 

sonable  assurance  of  its  effectiveness.  The  exposi- 
tions of  the  subject  usually  given  are  so  burdened 
with  masses  of  facts  and  complications  of  figures,  that 
few  have  either  the  patience  or  the' leisure  to  dig  out 
the  underlying  principles  and  articulate  them  in  a 
logical  skeleton.  I  have  endeavored  to  present  a 
clear,  clean-cut  outHne  of  the  elementary  truths,  and, 
using  illustration  only  to  illustrate,  have  endeavored 
to  avoid  starting  distracting  side  discussions  on  the 
meaning  of  the  complex  evidences  of  history." 

Mr.  Mc  Adam's  book,  like  Topsy,  "•  was  n't  born 
— it  growed."  Engaged  in  editorial  work  upon  the 
Brooklyn  Times,  the  leading  journal  of  the  eastern 
division  (Williamsburgh)  of  that  city,  he  found  by 
sad  experience,  both  in  studying  the  debates  in 
Congress  and  the  newspaper  comments,  and  in  his 
intercourse  with  his  readers,  that  the  simplest  princi- 
ples of  finance  were  continually  lost  sight  of  or  mis- 
construed. This  led  him  to  prepare,  with  careful 
study,  a  modest  series  of  elementary  articles,  which 
proved  useful  to  so  many  readers  that  it  was  thought 
they  might  be  of  service  to  the  wider  circle  reached 
by  a  book. 

Though  these  have  been  much  revised  and  ex- 
tended, the  book  is  still  elementary,  but  there  are 
few  readers  who  will  deenijL^sBginaiikMio  their  in- 

>^  OP  THB^^^ 

UJTI7ERSIT71 


X  AN   ALPHABET  IN  FINANCE, 

telligence  to  be  asked  to  see  how  simple  are  these 
complex  problems. 

The  book  is  intended  both  to  inform  those  whom 
it  reaches  and  to  put  them  in  a  position  to  inform 
others.  It  purposely  deals,  as  Mr.  McAdam  states, 
chiefly  with  principles,  and  makes  slight  use  of  illus- 
tration ;  in  this  respect  Mr.  David  A.  Wells'  clever  and 
useful  allegory,  "  Robinson  Crusoe's  Money,"  is  its 
counterpart  and  may  be  read  in  connection  with  it. 
The  present  volume  was  written  only  after  long  and 
unsuccessful  search  for  a  sufficiently  simple  work 
covering  this  particular  ground.  Those  who  desire 
to  pursue  the  subject  further  are  referred,  for  discus- 
sions of  principles,  to  Prof.  Jevons'  "  Money  and  the 
Mechanism  of  Exchange,"  and  Prof.  Bonamy  Price's 
"  Currency  and  Banking,"  and  for  illustrations  of 
practice  to  Prof.  W.  G.  Sumner's  "  History  of  Ameri- 
can Currency,"  which  gives  our  own,  and  Mr.  Walter 
Bagehot's  "  Lombard  St.,"  which  gives  the  English 
experience. 

There  are  those  who  distrust  books  and  "  theory," 
— which  seems  to  mean  a  wider  experience  than  their 
own, — in  this  subject  particularly,  to  such  extent 
that  the  only  safe  way  out,  to  their  minds,  is  to 
"  let  well  enough  alone  "  and  permit  the  problem  to 
find  its  "  natural  solution."     They  may  well  be  re- 


INTRODUCTION,  XI 

minded  that  the  natural  solution  of  human  problems 
must  come  through  men.  And  the  world  must  go 
on,  whether  they  choose  to  go  to  sleep  or  not. 
There  is  nothing  I  for  one  believe  ill  more  thoroughly 
than  the  "  let  be  "  theory  of  government,  that  it 
should  let  things  alone  as  far  as  possible,  and  that 
the  laws  of  nature  are  commonly  the  best  laws. 
The  application  in  the  present  case  is  that,  having 
thrown  the  government,  by  the  legal  tender  act,  in 
opposition  to  nature,  human  effort  must  get  it 
back  again  into  the  course  of  nature.  We  can't 
"  let  well  enough  alone "  till  we  go  well.  And 
nature  must  be  given  the  opportunity.  It  is  the  ir 
resolute,  weak-minded  Hamlet,  choosing  "  to  bear  the 
ills  we  have,"  who  flies  most  surely  to  worse  "  others 
that  we  know  not  of" — as  the  murderous  catastrophe 
of  Shakespeare  might  have  suggested  to  the  Ham- 
lets of  modern  days. 

I  cannot  close  without  suggesting  that  if  other 
Americans,  acknowledging  the  responsibilities  of  ed- 
ucation, would  do  their  duty  in  their  several  ways  in 
the  spirit  in  which  this  book  is  written,  they  would 
soon  be  converted  to  abundant  faith  in  democracy. 
One  of  the  best  means  of  fulfilling  that  duty  is  in  the 
circulation  of  just  such  books  among  those  who  disa- 
gree with  their  conclusions.     The  intrenchment  of 


Xll  AN   ALPHABET   IN   FINANCE. 

this  cause  must  be  among  the  people.  There  will 
always  be  an  influence  upon  Congressmen,  from  those 
who  must  feel  under  contraction  the  pressure  of  their 
own  mistakes,  tending  to  set  aside  any  plan  of  re- 
sumption the  moment  its  success  begins  to  be  proven 
by  the  results  at  once  desired  and  dreaded.  To 
give  the  requisite  resistance  to  our  representatives, 
they  must  be  made  to  know  that  to  turn  back  will 
make  them  more  unpopular  than  to  go  forward.  In 
a  word,  the  persistence  must  come  from  the  people. 
To  secure  this,  opponents  must  be  converted.  It  is 
one  of  the  lamentable  facts  of  our  political  cam- 
paigns that  we  are  out  of  the  habit  of  hearing  both 
sides.  We  read  only  "  our  own  "  papers,  and  listen 
only  to  speakers  on  our  own  side.  This  permits  not 
only  false  logic  but  false  issues,  and  keeps  us  fighting 
this  year  over  "  the  bloody  shirt,"  when  we  meant  to 
be  battling  for  financial  honesty  and  civil  service 
reform.  Direct  debate,  as  on  the  Southern  stump, 
is  the  true  method  for  campaigns  before  the  people. 
Had  not  the  South  proved  false  to  her  fashion  of  free 
debate  the  moment  it  touched  the  one  subject  on 
which  it  was  really  important  to  her,  she  might 
have  been  to-day  the  new,  free,  prosperous  South, 
without  the  awful  desolation  of  that  war  which,  re- 
pressed  in  words,  worked  itself  out  in  blood.     To 


INTRODUCTION.  Xlll 

promote  this  wholesome  challenging  of  opinions 
should  be  a  chief  aim  of  political  reformers.  The 
shot  must  tell  not  in  our  own  camp  but  in  the  ene- 
my's. Especially  is  this  true  of  this  question  of 
finance,  wherein  metaphor  has  done  duty  for  fact,  as- 
sumption for  argument,  and  such  phrases  as  "  the 
people's  money  "  have  been  dragooned  into  the  ser- 
vice of  a  theory  which  is  the  worst  enemy  of  an  hon- 
est and  industrious  people.  "  The  people  "  need  only 
a  full  informing  to  gratefully  resolve,  alike  from  the 
principles  of  morality  and  an  enlightened  self-interest, 
that  they  will  spell  out  the  Alphabet  of  Finance  to 
make    the   American    word   as  good    as   American 

g-o-l-d. 

R.  R.  BOWKER. 
September,  1876, 


CONTENTS 


PAGB 

Introduction .     .      iii 

CHAPTER  I. 
Origin  of  Money x 

CHAPTER  II. 
The  Choice  of  Gold 9 

CHAPTER  III. 
Qualities  of  Gold  for  Money 14 

CHAPTER  IV. 
What  is  a  Standard  Unit?      .....«•••      23 

CHAPTER  V. 
Money  a  Creation  of  Government 28 

CHAPTER  VI. 
How  Much  Gold? 33 

CHAPTER  VII. 
Gold  Self-Regulating 37 

CHAPTER  VIII. 
Gresham's  Law 44 


XVlll  CONTENTS. 

CHAPTER   IX. 

PAGB 

The  Double  Standard  Question 47 

CHAPTER  X. 
The  Credit  System 52 

CHAPTER  XI. 
Is  A  Bank-Note  Money? 56 

CHAPTER  XII. 
"Convertible"  Bank-Notes 6a 

CHAPTER  XIII. 
Convertible  Notes  Self-Regulating 69 

CHAPTER   XIV. 
Who  Should  Issue  Paper  Currency       ......      75 

CHAPTER  XV. 
Inconvertible  Notes — Legal  Tender 83 

CHAPTER   XVI. 
Inconvertible  Notes  not  Self-Regulating      ....      38 

CHAPTER  XVII. 
Inflation 93 

CHAPTEfl  XVIII. 
Pure  "Credit  Money" loa 

CHAPTER  XIX. 
The  "Closed  Circle" 107 


CONTENTS.  XIX 

CHAPTER  XX. 

PAGB 

The  Three-Sixty-Five  Bond  Scheme 112 

CHAPTER  XXI. 
The  Bond  Scheme  at  its  Best 117 

CHAPTER  XXII. 
Fractional  Currency 123 

CHAPTER  XXIII. 
Foreign  Exchange 126 

CHAPTER   XXIV. 
Banking 133 

CHAPTER  XXV. 
What  is  a  Specie  Basis? 142 

CHAPTER  XXVI. 
The  "Balance  of  Trade" 147 

CHAPTER  XXVII. 
The  Silver  Scheme 158 

CHAPTER  XXVIII. 
Resumption 172 

CHAPTER  XXIX. 
Resumption— The  Brighter  Side 197 

CHAPTER  XXX. 
The  Practical  Issue 204 


The  science  which  ends  in  the  prediction  of  an  eclipse,  begins 
with  the  acceptance  of  an  axiom.  The  reason  why  so  many  are  lost 
In  the  labyrinth  of  conclusions  is  that  they  have  suffered  the  clue  to 
slip  from  their  fingers.  An  essay  on  the  importance  of  clearly  under- 
standing first  principles  would  be  out  of  place  here,  yet  it  may  be 
permitted  to  observe  that  in  pursuing  a  logical  study  like  that  of 
money,  to  slide  lightly  over  the  opening  steps  because  they  are  so 
childishly  simple  is  only  to  lose  a  clear  direction  and  go  astray  as  the 
intricacies  are  approached. 


"O?  THE     *' 

^TJHIVBRSIT7J 
AN  ALPHABET   IN    FINANCE. 


CHAPTER   I. 

ORIGIN   OF  MONEY, 


HE  natural  way  of  getting  at  the  principles 
of  monetary  science,  would  be  to  run  the 
line  back  to  the  historical  beginning,  mark 
the  introduction  of  money  into  civilization, 
and  trace  its  development  to  its  present  point.  But 
to  do  this  by  an  actual  handling  of  the  particular 
facts  would  evidently  be  a  tremendous  labor.  For- 
tunately, such  a  course  is  not  at  all  necessary.  The 
fundamental  generalizations  are  so  evidently  true, 
that  it  is  enough  to  state  them  in  their  logical 
'order,  and  light  them  up  with  simple  illustrations. 
Let  us  attempt  this  briefly,  yet  without  undue  as- 
sumption of  previous  knowledge,  but  only  of  com- 
mon logical  faculties — and  without  any  compunctions 
against  making  the  simplest  matter  perfectly  clear. 


2  AN   ALPHABET  IN  FINANCE. 

In  a  perfectly  savage  state,  every  man  supplies 
directly  all  his  own  needs — his  own  clothing,  his 
own  food,  his  instruments  of  the  chase.  The  first 
step  in  civilization  is  the  division  of  labor.  Each  in- 
dividual produces  more  of  some  particular  thing  than 
he  needs  for  his  own  use,  and  he  disposes  of  this  sur- 
plus for  portions  of  the  surplus  productions  of  others 
which  he  requires  or  desires.  Barter  is  set  up.  The 
weaver  of  cloth  trades  his  product  of  cloth,  except 
what  he  wants  for  his  own  use,  for  corn  and  meat,  or 
such  other  goods  as  he  may  desire.  And  for  a  little 
time,  in  an  extremely  rude  state  of  society,  barter 
may  suffice  for  the  few  exchanges  that  are  necessary. 
But  presently  the  difficulty  arises  that  the  goods  of- 
fered in  exchange  will  not  match.  A  weaver  wants 
a  dozen  chairs,  but  the  chairmaker,  although  he  has 
the  chairs  to  dispose  of,  does  not  want  cloth  ;  he  wants 
a  pair  of  boots.  Now,  it  may  be  the  bootmaker 
wants  cloth,  and  the  weaver  may  endeavor  to  effect 
the  exchange  he  desires  through  him.  But  a  new 
difficulty  meets  him.  He  finds  that  the  bootmaker 
wants  only  three  yards  of  cloth.  But  a  pair  of  boots 
is  worth  five  yards,  and  the  bootmaker  will  not 
trade.  Even  if  he  would  it  occurs  to  the  weaver 
that  a  single  pair  of  boots  is  not  an  equivalent  for 
a  dozen  chairs,  but  only  for  three  or  four.     Now,  here 


ORIGIN    OF   MONEY.  3 

is  the  problem :  The  weaver  wants  chairs,  the  chair- 
maker  wants  boots,  the  bootmaker  wants  cloth  ;  all 
these  manufacturers  have  the  stock  ready  to  supply 
the  needs  of  their  fellow  producers,  but  because  the 
values  of  the  things  they  respectively  desire  do  not 
correspond,  trade  is  blocked. 

Mark  clearly  what  this  means.  What  is  Value  ? 
A  hatter  declares  his  hat  to  be  more  valuable  than 
the  baker's  loaf.  He  means,  when  we  run  the  mat- 
ter to  the  bottom,  that  the  hat  has  cost  more  labor 
in  production  than  the  loaf  has.  He  may  not  have 
put  that  labor  directly  into  the  hat  himself:  the  silk- 
maker,  the  thread-maker,  the  paper-maker  and  in- 
numerable laborers  have  contributed ;  but  to  pur- 
chase the  material  results  of  their  labor,  the  hatter 
has  had  to  give  his  own  labor  in  some  way.  It  is 
the  amount  of  labor,  then,  that  essentially — at  the 
bottom — constitutes  value,  and  determines  purchas- 
ing power. 

The  goods  offered  for  exchange  in  barter  do  not 
match  in  kind  nor  correspond  in  value.  What  can 
be  done  ?  Suppose  the  three  were  to  hold  a  council 
on  the  situation ;  we  can  imagine  that  they  would 
strike  out  something  like  this :  The  weaver  might 
say,  *♦  My  friends,  here  is  this  cloth  of  mine  which 
you  continually   want  for  yourselves   and  families 


4  AN   ALPHABET   IN   FINANCE. 

Although  you,  Mr.  Bootmaker,  only  require  three 
yards  to-day,  you  may  want  more  next  week ;  you 
certainly  will  want  more  after  a  time.  And  not  only 
do  you  use  this  cloth,  but  your  neighbors  use  it  and 
I  doubt  not  you  could  trade  off  any  surplus  you 
might  have,  if  at  any  time  you  wanted  anything  else. 
Why  not,  therefore,  take  even  more  than  you  at 
present  require,  rather  than  that  your  goods  lie  un- 
sold in  the  shop."  The  council  reflect.  The  boot- 
maker has  an  idea.  **  Let  us  take  cloth  as  our  me- 
dium of  exchange.  A  pair  of  boots  is  worth  five 
yards  of  cloth,  and  a  chair  is  worth  a  yard  and  a 
half  of  cloth — two  chairs  for  three  yards.  We  can 
easily  reckon  our  goods  in  yards  of  cloth,  and  trad- 
ing them  for  this  can  trade  the  cloth  again  for  meat, 
and  bread  and  fuel."  And  they  agree — and  the 
community  agrees.  The  weaver  gives  the  chair- 
maker  eighteen  yards  of  cloth  and  receives  his  dozen 
chairs ;  and  the  chairmaker  cuts  off  five  yards  of  cloth 
from  his  roll  and  hands  them  over  to  the  bootmaker, 
who  returns  a  pair  of  boots. 

Now  here  we  have  a  true  MONEY.  And  we  shall 
see  that  the  primal  qualities  it  possesses  are  necessary 
to  all  true  money.  Let  us  take  a  clear  look  at  them, 
for,  simple  as  they  are,  they  are  wonderfully  misun- 
derstood— to  the  utter  confounding  of  all  thought  on 


ORIGIN   OF  MONEY.  5 

the  subject.  Cloth  is  the  medium  of  exchange.  Di- 
rect barter  not  being  adequate  to  the  complex  de- 
mands of  civilized  trade,  the  community  have 
adopted  the  device  of  double  barter.  They  have 
agreed  upon  one  universally  acceptable  commodity 
which  shall  stand  as  a  middle  commodity  in  their 
exchanges.  General  goods  are  bartered  for  it  and  it 
is  bartered  for  general  goods.  The  commodity 
chosen  for  this  middle  office  is  one  whose  value  is 
well  known.  The  hatter  knows  that  a  yard  of  cloth 
is  worth  a  certain  fraction  of  a  hat ;  the  baker  that  it 
is  worth  so  many  loaves  of  bread.  It  is  thus  qualified 
to  be  the  common  measure  of  value. 

And  let  it  be  marked  with  the  utmost  distinct- 
ness, that  the  establishment  of  a  common  measure  of 
value  is  pre-requisite  to  the  adoption  of  a  common 
medium  of  exchange.  The  hatter,  the  baker  and  the 
weaver  must  know  what  the  ratios  of  exchange 
among  their  wares  are  before  they  can  exchange  at 
all — that  is,  they  must,  even  in  direct  barter,  have 
some  measure  of  value.  The  measure  they  have  is 
— for  each  man  his  own  goods.  They  find  that  this 
method  of  measuring  is  inconvenient.  Every  trader 
must  work  out  complicated  sums  in  proportion  with 
every  man  he  deals  with.  Now  they  seek  a  common 
medium  of  exchange.     But  this  does  not  do  away 


6  AN  ALPHABET  IN  FINANCE. 

with  the  need  of  measuring.  Hence,  since  the 
medium  must  express  the  values  of  things  exchanged 
in  some  common  terms,  the  common  terms  must  be 
agreed  upon — the  common  measure  of  value  must 
be  fixed.  The  comprehension  of  this  truth  at  the 
start  is  a  matter  of  the  last  importance.  It  reveals  at 
once  the  absurdity  of  all  those  visionary  systems  of 
exchange  in  which  the  measure  of  value  is  ruled  out, 
and  supplies  the  reason  for  those  disturbances  of 
trade  which  follow  the  separation,  even  by  a  little,  of 
the  medium  from  the  measure.  These  things  will 
appear  clearer  as  we  proceed. 

The  medium  and  common  measure  is  chosen. 
The  butcher  and  the  baker  no  longer  puzzle  over  the 
"  rule  of  three,"  but  simply  refer  the  values  of  their 
wares  to  the  common  measure.  They  fix  \^t\x prices; 
that  is,  they  measure  off  the  value  in  the  money,  cloth, 
the  unit  of  value-measurement  being  the  value  of  a 
yard  of  cloth.  And  they  are  no  longer  troubled  to  find 
people  who  have  the  particular  articles  they  wish  for 
and  at  the  same  time  happen  to  want  what  they 
themselves  have  to  offer.  They  first  barter  or  sell 
their  own  goods  for  money,  and  then  barter  or  sell 
the  money  for  the  goods  of  others.  It  must  be  clearly 
noted  that  the  money  is,  in  each  case,  as  much  sold 
as  the  goods.     One  valuable  thing  is  traded  for  an- 


ORIGIN    OF  MONEY.  7 

other  valuable  thing.  And  the  mere  fact  of  the 
trade  does  not  make  the  man  who  gets  the  money  a 
whit  the  richer.  He  has  put  a  certain  value  into  the 
goods  by  his  labor,  and  now  realizes  upon  that  value 
— gets  it  in  available  shape.  But  money  is  wealth 
in  no  higher  degree  than  the  wheat  that  is  given  for 
it.  It  simply  brings  the  trader  nearer  the  commodi- 
ties which  he  desires  to  purchase  with  his  wheat.  It 
measures  the  amount  of  his  purchasing  power  and 
may  be  directly  bartered.  Money  stands  prominent 
above  other  commodities,  not  because  it  is  peculiarly 
wealth,  but  because  it  discharges  peculiar  functions. 

Now,  without  affirming  before  proof  that  our 
view  is  complete,  we  shall  find  it  useful  to  draw  from 
our  illustration  a  definition  : 

Money  is  a  commodity  which^  because  of  its  gen- 
eral acceptability  and  commonly  known  value,  has 
been  selected  by  the  community  to  be  a  measure  of  value 
and  a  medium  of  exchange. 

And,  again  without  asking  prejudgment,  we 
may  anticipate  the  proofs  to  be  hereafter  rendered, 
and  emphasize  the  principle,  already  revealed  in 
essence,  that  the  measurement  of  values  is  the 
supremely  important  thing  in  trade,  and  that  this  is 
always  performed  by  money — by  the  valuable  com- 
modity established  as  money.     Through  all  the  com- 


8  AN  ALPHABET  IN  FINANCE. 

plications  of  bills,  checks,  notes,  book-accounts,  and 
even  in  direct  barter,  money  is  never  dispensed  with. 
It  is  only  superceded  in  some  of  its  offices.  In  every 
trade  transaction,  whether  it  is  present  in  material 
form  or  not,  it  plays  its  part  as  the  measure  of  value. 


CHAPTER   II. 

THE  CHOICE  OF  GOLD. 

N  our  last  chapter  we  reached  the  point 
where  it  appeared  that  a  commodity 
generally  acceptable  could  become  a  true 
money — that  is,  a  measure  of  value  and 
a  medium  of  exchange.  Cloth  was  the  commod- 
ity chosen  in  our  illustration  ;  but  the  reader  will 
readily  understand  that  it  might  easily  have  been 
some  other  commodity.  And  many  other  things 
have  been  and  are  used  as  this  instrument  of 
trade.  The  ancients  employed  cattle, — whence, 
through  pecus,  a  flock,  our  word  pecuniary ;  the 
Greeks  at  one  time  used  copper  nails ;  the  North 
American  Indians  and  the  early  colonists  adopted 
wampum,  beaver  skins,  and  other  commodities ; 
cowry  shells  are  used  to-day  in  Africa,  in  India  cakes 
of  tea,  in  China  pieces  of  silk ;  Abyssinia  has  a  salt 
money,  Iceland  a  codfish  money  ;  and  at  the  annual 
fair  at  Nizhni  Novgorod,  Russia,  tea  is  the  estab- 
lished measure  of  value.     All  these  articles  have 


10  AN  ALPHABET  IN  FINANCE, 

constituted  true  money,  and  a  little  reflection  will 
show  that  they  have  been  able  to  become  money 
because  of  certain  qualities  common  to  all.  First 
and  most  essential  among  these  is  what  may  be 
termed  a  natural  (as  distinguished  from  legal)  pur- 
chasing power,  derived  from  the  acceptability  of  the 
article  for  its  utility  or  its  desirableness  as  an  orna- 
ment, and  determined  ih  amount  by  the  amount  of 
labor  necessary  to  produce  it. 

Let  us  get  this  entirely  clear.  Trade  at  the 
bottom  is  exchange  of  the  fruits  of  labor.  A  baker 
puts  his  labor  into  a  loaf  of  bread,  and  the  materials 
he  uses  are  bought  by  his  labor ;  a  shoemaker  simi- 
larly puts  his  labor  in  a  pair  of  shoes.  Now,  a  com- 
parison of  the  amounts  of  labor  in  the  loaf  and  the 
pair  of  shoes  will  determine  the  ratio  of  exchange 
between  these  two  articles — that  is,  will  give  their 
values  with  respect  to  each  other.*  If  it  takes  fifty 
times  as  much  labor  to  produce  a  pair  of  shoes  as  it 
does  to  produce  a  loaf  of  bread,  then  the  value  of  a 
pair  of  shoes,  expressed  in  terms  of  bread,  will  be 
fifty  loaves.  Value  is  expressed  as  a  ratio  of  exchange. 
And   natural   value,   natural    purchasing  power^  is 

*  It  is  perhaps  unnecessary  to  speak  of  the  effects  of  quality  of 
labor  and  of  supply,  in  this  connection.  Quality  is  generally  reduci 
ble,  in  value,  to  quantity  ;  and  supply,  as  in  the  fine  arts,  in  some 
thing  above  ordinary  trade.     The  general  law  remains  the  same. 


THE    CHOICE    OF    GOLD.  II 

determined  by  the  ratio  of  labor.  The  necessity  of 
a  clear  definition  of  "  value  "  as  respects  trade  will 
readily  appear.  The  common  air  has  a  value  that  is 
beyond  all  price  ;  but  it  has  no  value  at  all  in  trade 
because  every  one  can  get  it  for  nothing.  Value  in 
trade  depends  upon  labor. 

To  take  up  the  thread  again :  The  essential 
quality  common  to  all  these  various  kinds  of  money 
is  a  natural  value,  generally  recognized  by  the  com- 
munity. Other  qualities  are,  a  certain  degree  of 
uniformity  in  value,  a  certain  degree  of  stability  in 
value,  a  certain  degree  of  portability.  But  evidently 
they  do  not  all  possess  these  important  qualities 
in  like  measure.  Even  more,  they  are  all  very  de- 
ficient or  imperfect  in  every  one  of  these  qualities. 
And  a  Httle  reflection  will  show  that  there  are  many 
other  qualities  which  it  would  be  desirable  to  find  in 
money,  but  which  these  articles  scarcely  have  at  all. 

Without  further  elaboration  of  this  line  of  in- 
quiry, we  may  come  at  once  to  the  question.  What 
are  the  primal  functions  of  money  ?  Two  of  them 
we  know  already :  a  measure  of  value  and  a  medium 
of  exchange.    Are  there  others  ? 

In  a  very  simple  state  of  trade,  an  article  merely 
filling  these  two  functions  might  serve  well  enough. 
But  as  commerce  deveJagggSiaeBgeQuirements  are 

oip>^  0^  THE 

'TJHIVBRSIT 


12  AN  ALPHABET  IN  FINANCE. 

felt.  People  do  not  turn  their  goods  at  once  into 
other  goods,  but  sell  for  money  and  wait  a  while  be- 
fore purchasing.  They  need  a  medium  which  can 
be  relied  upon  to  bring  back  goods  as  valuable  as 
those  they  sold.  Again  they  sell  on  credit ;  they 
will  receive  money  some  months  hence.  This  money, 
therefore,  should  not  be  such  that  it  will  change  in 
purchasing  power  during  the  interval.  Its  value 
should  be  reasonably  fixed.  A  third  function  of  good 
money  is,  then,  to  be  a  standard  of  value.  The  com- 
modity should  be  one  that  not  only  will  measure 
to-day's  transactions,  but  which  can  also  be  depended 
upon  to  measure  truly,  transactions  to  be  consum- 
mated after  months  and  after  years. 

Again,  people  desire  frequently  to  transport 
wealth  from  place  to  place,  from  country  to  country. 
This  becomes  a  very  important  matter  in  the  settle- 
ment of  foreign  debts,  and  in  general  commercial  ex- 
change. As  we  shall  see,  also,  it  very  nearly  con- 
cerns the  exemption  of  money  from  fluctuations  in 
value.  Some  commodity,  therefore,  is  wanted,  ac- 
ceptable the  world  over,  which  possesses  great  value 
in  small  bulk.  A  fourth  function  of  money  is  to  be 
a  store  of  value. 

A  measure  of  value  ^  a  medium  of  exchange,  ^stand- 
ard of  value,  a  store  of  value : — is  there  any  article 


THE    CHOICE    OF   GOLD.  1 3 

which  is  better  adapted  to  fulfil  these  functions  than 
the  beaver  skins,  the  cowries,  the  cattle,  the  tea, 
of  ancient  and  uncivilized  nations  ?  The  experience 
of  the  world  says  there  is,  and  that  that  article  is 

GOLD* 

*  See  Chapter  IX  as  to  silver. 


CHAPTER  III. 

QUALITIES  OF  GOLD  FOR  MONEY. 

T  will  be  useful  now  to  regard  with  particu- 
larity the  qualities  of  gold  for  money,  and 
consider  whether  the  world  has  not  judged 
wisely  in  choosing  it  as  the  best  commod- 
ity for  the  purpose.  Its  properties,  with  respect  to 
this  purpose,  may  be  enumerated  (somewhat  in  the 
order  of  their  importance)  thus:  Value,  Stability, 
Portability,  Divisibility,  Indestructibility,  Uniformity, 
Recognizability. 

Value  :  It  is  generally  acceptable  and  is  a  product 
of  labor.  Strange  as  it  may  seem,  certain  theorists 
(the  advocates  of  paper  money)  have  at  one  time 
denied  that  gold  possesses  any  natural  value,  and 
at  another  declared  that  the  possession  of  natural 
value  unfits  it  to  be  money.  There  would  seem 
really  to  be  no  way  of  debating  the  first  of  these 
positions.  The  universal  acceptability  of  gold  is 
simply  a  fact,  and  it  is  no  less  a  fact  that  gold  can 
not  be  obtained  without  labor.     In  all  ages  gold  has 


QUALITIES    OF    GOLD    FOR   MONEY.  1$ 

been  among  the  highest  prized  of  metals,  becoming 
from  its  remarkable  qualities  the  symbol  of  truth, 
nobleness,  honor,  and  all  worth.  If  what  is  called 
the  "  argument "  against  its  value  be  examined,  it  is 
found  to  be  simply  a  protest  against  the  folly  of  men 
in  placing  a  value  on  ornament.  Gold  is  used,  say 
the  paper  money  theorists,  chiefly  in  jewelry ;  but  a 
jewel  is  not  a  useful  thing  ;  it  is  of  no  value  to  man- 
kind. Now,  without  considering  whether  things 
which  minister  to  other  than  the  merely  physical 
necessities  should  possess  value  among  rational 
beings,  the  fact  remains  that  they  do.  **  Value,"  in 
the  sense  under  consideration,  is  a  matter  of  trade 
worth.  The  paper  argument  is  a  trick  of  a  word. 
A  bottle  of  poison  may  have  "  value "  in  trade, 
although  it  be  worse  than  valueless  to  the  man  who 
purchases  it.  Gold  has  always  been  generally  ac- 
ceptable for  its  rare  qualities  as  an  ornament,  and  in 
later  years  has  acquired  a  high  utility  in  chemistry, 
dentistry  and  various  arts.  Moreover,  its  value  for 
the  very  purpose  of  measuring  value,  its  very  fitness 
in  all  ways  to  be  money,  is  not  to  be  overlooked. 
This  consideration  seems  to  trouble  many.  It  is 
thought  to  give  support  to  the  paper  money  argu- 
ment that  the  value  of  gold  is  a  factitious  value, 
maintained   only   because   men   choose   to  use   the 


l6  AN-   ALPHABET   IN   FINANCE. 

metal  for  money.  The  fog  should  disappear  with 
the  reflection  that  the  acceptability  of  a  commodity 
(in  other  terms,  the  number  of  uses  to  which  it  may 
be  put,  or  the  quantity  of  it  which  may  be  called  for) 
does  not  determine  the  degree  of  its  value — except 
in  so  far  as  a  sudden,  abnormal  demand  produces  a 
temporary  rise.  Iron  has  many  more  uses  than  gold, 
but  it  does  not  possess  as  great  an  exchange  value. 
Why  ?  Because  it  does  not  require  as  much  labor  to 
dig  a  like  quantity  from  the  mines.  Acceptability, 
utility,  only  furnishes  a  basis  for  value.  The  degree 
of  value  is  determined  by  the  amount  of  labor  in 
producing.  It  costs  a  dollar's  worth  of  labor  to  get 
a  dollar's  worth  of  gold  out  of  the  earth.  This  is 
why  a  dollar  is  a  dollar  and  not  fifty  cents.  And  so, 
let  it  be  noticed,  the  demand  of  one  school  of  vision- 
ary philosophers,  that  the  measure  of  value  should 
be  "  based  on  labor,"  is  already  met  in  the  only  way 
that  is  possible,  namely,  by  using  a  specific  amount 
of  the  fruit  of  labor  as  the  definite  unit  of  value- 
measurement. 

Certainly  if  the  demand  for  gold  were  to  be  sud- 
denly increased,  the  metal  would  rise  in  value  irre- 
spective of  labor.  But  here  would  be  a  special  cause 
operating.  And  somebody — perhaps  the  miner — 
would  get  more  than  his  due  wage.     The  unusual 


QUALITIES    OF   GOLD    FOR   MONEY,  1 7 

demand  continuing,  more  miners  would  enter  the 
field,  and  presently  the  supply  of  the  metal  would 
catch  up  to  the  demand,  its  value  would  decline 
until  mining  returned  to  the  laborer  the  average  rate 
of  remuneration.  An  undue  decline  in  the  value  of 
gold  would  be  corrected  by  opposite  consequences. 
In  fine,  where  a  commodity  is  produced  at  a  steady 
rate,  the  demand  only  furnishes  the  basis  of  value  ; 
the  degree  of  value  is  determined  by  the  amount  of 
labor.  Regarding  the  other  position,  that  gold  is 
not  fit  for  money  because  it  has  value,  we  shall  only 
remark  here  that  to  measure  value  you  must  have 
value;  just  as  to  measure  weight  you  must  have 
weight,  and  to  measure  length  you  must  have 
length. 

Stability  of  Value  :  This  is  an  exceedingly  impor- 
tant point,  but  one  on  which  mistakes  are  common 
Value  being  created  by  the  acceptability  of  an  article, 
and  determined  in  amount  by  the  labor  of  produc- 
tion, stability  in  value  is  secured  by  uniformity  in 
acceptability  and  uniformity  in  the  labor  of  produc- 
tion. Our  cloth  money  (see  Chap.  I,)  would  not  have 
stability  because  a  change  of  fashion  would  make 
the  old  stock  on  hand  non-acceptable,  and  because 
changes  in  the  cost  of  material  and  what  not  would 
alter  the  cost  of  production  from  year  to  year.     We 


l8  AN  ALPHABET   IN   FINANCE. 

could  not  find  stability  in  any  commodity  like 
wheat,  for  one  year  the  farmer's  labor  is  rewarded 
abundantly  and  the  next  the  crop  almost  fails.  Do 
we  find  stability  in  gold  ?  We  do,  and  to  a  very 
high  degree.  Observe  that  absolute  fixedness  of 
value  is  not  claimed  for  gold  :  it  is  impossible  to 
find  that  in  any  human  product.  But  the  changes 
in  the  value  of  gold  are  exceedingly  small.  From 
year  to  year  it  costs  just  about  the  same  amount  of 
labor  to  produce  a  given  quantity  of  the  metal,  and 
the  demand  for  it,  for  use  as  jewelry  and  as  money 
and  in  the  arts,  is  remarkably  uniform.  \\.  fluctuates 
scarcely  at  all.  Gold  is  stable  in  value.  We  know 
the  reason.  And  let  us  stick  fast  to  that.  But  now 
comes  the  question.  How  is  that  stability  mani- 
fested? And  here  is  where  the  utter  confusion 
arises.  People  are  not  wont,  when  contemplating  a 
purchase,  to  inquire  as  to  the  amount  of  labor  put 
into  the  object  they  desire.  They  ask  fts  "  price." 
Now,  when  we  say  that  wheat  is  worth  half-a-dollar 
a  bushel,  we  mean,  just  as  much,  that  the  price  of 
gold  dollars  in  wheat  is  two  bushels  each.  But  this 
year  a  gold  dollar  is  worth  two  bushels,  last  year  it 
was  worth  but  one  bushel,  and  next  year  it  may  be 
worth  but  a  bushel  and  a-half.  "  How  then  can  you 
say  that  gold  does  not  fluctuate  ?  '*     And  we  might 


QUALITIES    OF   GOLD    FOR    MONEY.  IQ 

take  cotton,  hay,  beeves,  and  show  in  the  same  way 
that  the  ratio  of  exchange  between  these  and  gold 
is  fluctuating  continually.  Why  charge  these  fluc- 
tuations on  everything  except  gold  ?  Let  us  resort 
to  a  rude  illustration.  Suppose  that  in  1875  the 
price  of  an  umbrella  was  $1.75  ;  of  a  hatchet,  75 
cents  ;  of  a  bushel  of  wheat  50  cents.  And  suppose 
that  in  1876  the  prices  of  these  articles  were  respect- 
ively $1.50,  50  cents  and  $1.  Our  inquiring  and 
critical  friend  now  observes,  **  You  see,  in  1875  a  gold 
dollar  was  worth  four-sevenths  of  an  umbrella,  in 
1876  it  is  worth  two-thirds  of  an  umbrella ;  in  1875 
it  was  worth  one  and  a  third  hatchets,  in  1876  it  is 
worth  two  whole  hatchets;  in  1875  it  was  worth  two 
bushels  of  wheat,  in  1876  it  is  worth  but  one.  And 
yet  you  tell  me  gold  does  not  fluctuate  !  "  But  sup- 
pose that  we  add  the  prices  of  these  articles,  in  each 
year,  together.  The  sum  each  time  is  $3.00.  In 
other  words,  $3.00  in  gold  will  buy  an  umbrella,  a 
hatchet  and  a  bushel  of  wheat  in  1876  just  as  it 
would  in  1875.  Hence,  the  fluctuations  have  oc- 
curred not  in  gold  but  in  other  commodities.  And 
just  the  sort  of  test  we  have  thus  crudely  described 
has  been  applied  to  the  mimense  field  of  facts  in 
actual  commerce.  Volumes  have  been  written  on 
prices,  and  mountains  of  data  have  been  distributed 


20  AN  ALPHABET   IN  FINANCE. 

in  tables,  with  the  result  of  showing  that  gold  is  one 
of  the  least  fluctuating  of  commodities.  The  ratio 
of  exchange  with  the  aggregate  of  other  products  is 
remarkably  fixed.  This  is  of  course  what  we  should 
expect,  since  the  scientific  cause  of  the  fact  was 
already  revealed.  Nor  would  it  have  been  necessary 
to  approach  the  matter  in  this  upside-down  fashion, 
but  for  the  circumstance  of  the  marvellous  notions 
that  prevail. 

Portability:  Gold  contains  large  value  in  small 
bulk.  It  is  portable.  Lycurgus  abolished  the  use 
of  gold  and  silver  and  introduced  heavy  brass  and 
iron  coin  in  Sparta  for  the  express  purpose  of  mak- 
ing the  possession  of  money  a  burden.  But  the  mate- 
rial for  money  should  not  be  too  valuable.  Iridium 
is  so  costly  that  small  values  expressed  in  it  would 
have  to  be  held  with  delicate  pincers,  and  would  easily 
be  lost,  perhaps  puffed  from  the  hand  by  an  inadver- 
tent sneeze.  A  comment  may  be  in  place  here  as  to 
the  current  superficial  talk  about  **  cheap  money." 
Silver,  it  is  said,  would  be  a  good  money,  the  *'  poor 
man's  money,"  because  it  is  "cheap."  But  to  say 
that  a  metal  is  cheap,  in  this  sense,  is  to  say  only 
that  it  requires  a  large  quantity  of  it  to  act  as  a 
medium  of  exchange  for  a  small  amount  of  labor. 
The  labor  does  not  bring  a  whit  more  value,  but  only 


QUALITIES    OF   GOLD    FOR  MONEY.  21 

more  bulk,  more  weight.  The  "  poor  man "  who 
should  be  paid  sixty  dollars  for  a  month's  work  in 
**  cheap  money  **  would  only  find  that  in  place  of  a 
weight  of  about  three  ounces,  he  would  have  to  lug 
off  about  five  pounds.  And  his  five  pounds  of  silver 
would  not  buy  a  single  potato  more  than  the  three 
ounces  of  gold.  He  would  have  sixty  dollars*  purchas- 
ing power  and  no  more.  .  It  would  injure  the  quality 
of  gold  for  money  to  have  it  much  cheaper ;  it  would 
simply  become  less  portable.  And  we  shall  see  that 
the  injury  might  be  very  great,  when  we  come  to  con- 
sider the  self-regulating  action  of  gold,  and  its  influ- 
ence in  adjusting  the  world's  scale  of  prices. 

Divisibility :  Because  the  values  of  commodities 
range  through  such  finely  graduated  measures,  it  is 
desirable  to  have  an  article  for  money  which  can  be 
divided  without  loss.  If  a  certain  commodity  were 
worth  but  half  as  much  as  a  beaver  skin,  it  would  be 
difficult  to  adjust  a  trade  with  such  money.  For  to 
cut  the  skin  in  two  pieces  is  to  destroy  a  part  of  its 
value.  With  the  ancient  cattle-money  also — it  would 
be  a  hazardous  undertaking  to  "  make  change  "  by 
slicing  a  steak  off  the  round.  But  a  piece  of  gold  can 
be  easily  divided,  and  the  aggregate  value  of  the 
parts  is  almost  exactly  equal  to  the  value  of  the 
whole  piece. 


22  AN  ALPHABET  IN  FINANCE. 

Indestructibility :  Corn  grows  mouldy,  cloth  be- 
comes moth-eaten,  shells  break,  soap  disappears  in 
the  rain,  cattle  get  sick — to  say  nothing  of  their  con- 
tinual consumption  of  value  in  fodder.  But  gold 
resists  rust,  resists  fire,  and  retains  its  value  under 
almost  any  circumstances. 

Uniformity  :  When  cows  were  received  in  Massa- 
chusetts for  taxes,  the  farmer  was  prone  to  pay  in 
the  poorest  specimens  of  his  barn-yard.  A  cow  was 
a  cow  "  for  a'  that."  And  in  1658  it  was  ordered 
that  no  man  should  pay  taxes  in  "  lank  cattle."  It  is 
desirable  that  the  commodity  used  for  money  should 
be  even  in  value.  Gold  is  homogeneous  or  uniform  ; 
equal  weights  of  a  refined  bar  are  exactly  equal  in 
value. 

Recognizability  :  The  material  of  money  should  be 
such  that  the  value  of  a  piece  can  be  easily  known. 
If  special  skill  be  required  to  estimate  goodness  or 
value — as  would  be  the  case  if  diamonds  were  used — 
the  ignorant  would  be  constantly  imposed  upon,  and 
disputes  and  confusion  would  continually  result. 
Gold,  from  its  well-known  color,  ring,  '*  feel,"  etc., 
and  because  it  can  be  coined  into  pieces  of  known 
value,  makes  a  remarkably  recognizable  money. 


CHAPTER  IV. 

WHAT  IS  A  STANDARD  UNIT? 

T  is  settled  that  gold  is  the  best  commodity 
with  which  values  may  be  measured.  It 
is  next  in  order  to  fix  upon  a  unit  of 
value-measurement.  This  is  a  very  simple 
matter.  With  our  cloth  money,  we  found  the 
"  unit "  to  be  a  certain  definite  quantity  of  cloth, 
known  as  a  "yard."  Using  gold  for  money,  the 
"  unit "  will  be  a  certain,  definite  quantity  of  gold — 
so  many  grains,  so  many  ounces,  or  so  many  pounds. 
The  unit  chosen  by  the  United  States  is  23.22  grains 
of  pure  gold,  or  25.8  grains,  ^  fine.  Now  evidently, 
the  United  States  might  have  chosen  twice  this 
quantity  for  a  unit,  or  fifty  times  the  quantity,  or 
half  the  quantity.  It  was  only  necessary  that  it 
should  choose  some  quantity,  fix  it  exactly,  and 
adhere  to  the  unit  so  fixed.  The  principle  is  the 
same  as  in  all  other  established  measures.  It  would 
have  made  no  essential  difference  in  the  beginning 
whether  a  "  yard  "  were  the  length  now  known  as 


24  AN  ALPHABET   IN   FINANCE. 

such,  or  a  length  ten  times  as  great.  The  change 
would  be  simply  that  a  "  yard  of  cloth  "  would  mean 
ten  times  as  much  cloth  as  is  included  in  the  present 
yard.  The  real  length  of  the  cloth  would  not  be 
altered  by  a  hair.  The  United  States  unit  of  value 
is  25.8  grains  of  gold,  -^  fine.  But  it  is  convenient 
to  have  a  name  for  a  unit  of  measurement-  It  would 
be  awkward  to  say  "  The  price  of  this  knife  is  25.8 
grains  of  gold,  ^  fine."  Hence  a  name  was  given — 
"  dollar."  "  The  price  of  this  knife  is  a  dollar." 
And  just  as  it  was  found  necessary  to  fix  the  stand- 
ard of  weights  and  measures  by  law,  that  the  weaver 
who  promised  so  many  "  yards,"  or  the  grocer  who 
promised  so  many  "  pecks,"  should  not  be  permitted 
to  act  upon  his  individual  notion  of  how  much  cloth 
ought  to  be  a  "  yard,"  or  how  many  potatoes  made  a 
fair  "  peck,'*  so  it  was  found  necessary  to  fix  the  unit 
of  value  (in  this  country,  the  "dollar,")  by  govern- 
mental authority.  Hence,  in  a  word,  25.8  grains  of 
gold,  ^  fine,  put  into  a  certain  convenient  shape,  is 
declared  by  law  to  be  the  legal  dollar, — the  standard 
unit  of  value-measurement.  All  engagements  to 
pay  "  dollars  "  may  be  legally  enforced  on  this  basis 
' — except,  of  course,  when  the  law  is  suspended,  as 
it  is  at  the  present  date  by  the  enactment  making 
certain  paper  notes  "  legal  tender." 


WHAT  IS  A    STANDARD    UNIT?  25 

This  is  perhaps  as  convenient  a  place  as  any  to 
dispose  of  that  curious  blunder  which  displays  itself 
in  such  remarks  as  that  "  the  mines  of  all  the  world 
cannot  supply  gold  enough  to  measure  the  world's 
exchanges."  It  would  appear  that  to  measure  a 
hundred-foot  liberty  pole,  your  true  statesman 
requires  a  hundred  foot-rules,  while  to  measure  all 
the  liberty  poles  in  the  Union,  and  all  the  telegraph 
poles,  and  the  heights  of  all  the  public  buildings — 
why,  the  entire  forests  of  America  would  not  fur- 
nish stick  enough  for  the  enormous  number  of  foot- 
rules  that  he  would  find  necessary  !  The  error  is  a 
most  extraordinary  example  of  philosophical  wool- 
gathering. Obviously,  the  quantity  of  gold  in  the 
world  is  a  matter  of  no  consequence  whatever  in  this 
connection.  Specific  values  can  be  expressed  by  spe- 
cific quantities  of  the  metal.  That  is  the  end  of  the 
matter.  Suppose  the  metal  were  scarcer— suppose 
it  were  as  rare  as  iridium.  This  would  mean  simply 
that  it  cost  more  labor  to  produce  a  given  quantity ; 
it  would  be  less  bulky  in  proportion  to  its  value. 
The  specific  quantity  selected  to  offset  the  present 
dollar's  worth  would  be  smaller  than  now.  If  gold 
were  twice  as  rare  as  now,  a  bushel  of  wheat  now 
held,  say,  as  an  equivalent  for  25.8  grains  of  gold, 
would  then  be  held  as  an  equivalent  for  only  12.9 


26  AN  ALPHABET  IN  FINANCE. 

grains.  The  entire  quantity  of  gold  would  contain 
as  much  value  then  as  the  entire  quantity  contains 
now,  and  hence  would  as  justly  measure  the  value 
to  be  measured.  However  much  or  little  gold  there 
is,  it  must  always  be  enough  for  the  purpose. 

We  thus  reach  the  subject  of  coining.  Or- 
dinarily, there  would  seem  to  be  no  difficulty 
in  understanding  the  rationale  of  coining;  and  in 
point  of  fact  the  matter  is  exceedingly  simple,  if 
approached  in  the  line  of  natural  development 
which  we  have  been  following.  Experience  proved 
gold  to  be  the  best  material  of  which  to  make  mon- 
ey ;  in  what  shape  should  it  be  prepared  for  use  ? 
The  early  nations  used  the  metal  in  rough  lumps, 
whose  value  they  had  rudely  to  estimate  by  weigh- 
ing and  testing  with  acids.  The  ancient  Peruvians 
put  up  gold  dust  in  quills.  In  the  mining  regions  of 
California,  Australia,  and  New  Zealand,  gold  is  still 
used  for  money  in  the  form  of  flakes  and  dust. 
What  does  coining  do  ?  Simply  packs  certain  quan- 
tities of  the  metal,  of  certain  fineness,  in  convenient 
form  for  handling,  putting  upon  each  packet  a  stamp 
by  which  the  value  of  the  piece  is  certified.  Various 
devices  are  resjorted  to  to  prevent  counterfeiting  ;  but 
the  single  purpose  is  evidently  as  we  have  stated. 
Yet  some   theorists  assert    that    the    Government 


WHAT  IS   A    STANDARD    UNIT?  2/ 

stamp,  and  that  only,  gives  the  value  to  the  piece. 
If  that  were  so,  the  government  could  put  its  stamp 
on  a  bit  of  copper,  "  One  Dollar,"  and  immediately 
the  same  would  have  the  purchasing  power  of  a  dol- 
lar of  gold. 

It  really  seems  folly  to  soberly  discuss  such  a 
matter,  but  during  the  Ohio  campaign  the  statement 
was  frequently  made  that  gold  was  worth  nothing  in 
itself,  and  that  the  seal  of  the  government  was  what 
made  the  dollar  able  to  buy  a  dollar's  worth.  But 
is  not  the  fact  perfectly  clear?  The  government 
stamp  simply  gives  reliable  information.  As  Mr. 
Adams  has  observed,  its  purpose  is  "  to  save  every 
man  the  trouble  of  carrying  about  with  him  a  bottle 
of  acid  and  a  pair  of  scales.''  And  the  work  of  coin- 
ing properly  belongs  to  the  government,  for  the 
simple  reason  that  the  certification  of  private  indi- 
viduals could  not  possibly  be  as  authoritative.  If 
the  stamp  conferred  the  value,  then  the  obliteration 
of  the  stamp  would  destroy  that  value.  But  a  gold 
dollar  can  be  pounded  into  a  shapeless  pellet,  and  it 
is  very  nearly  as  valuable  as  before — almost  precisely 
as  valuable  for  foreign  trade.  It  loses  nothing  but 
its  attributes  of  convenience. 

The  subject  of  fractional  coinage  involving  prin- 
ciples not  yet  discussed,  it  will  be  more  conveniently 
treated  hereafter. 


CHAPTER  V. 

MONEY  A  "  CREA  TION  OF  GOVERNMENT:' 

E  have  now  reached  a  point  from  which  it 
will  become  more  and  more  necessary — for 
the  saving  of  space  and  time  in  attaining 
our  object — to  take  notice  of  current  errors 
while  endeavoring  to  unfold  the  true  theory  of  money. 
We  have  seen  that  under  natural  conditions  a  com- 
munity, confronted  with  the  evident  difficulties  of 
simple  barter,  will  select  some  fit  commodity  as  a 
medium  through  which,  by  a  process  of  double  bar- 
ter, the  necessary  exchanges  may  be  easily  and 
equitably  effected.  And  we  have  seen  that  experi- 
ence has  pointed  out  gold  as  the  fittest  commodity 
to  become  this  tool  of  trade.  And  finally  we  have 
seen,  that  for  convenience  in  handling  and  reckoning, 
the  gold  will  be  fashioned  into  pieces  of  definite 
weight  and  fineness,  bearing  simple  proportional 
relations  to  each  other,  the  labor  of  coining  being 
assumed  by  the  State,  because  the  stamp  of  the  State 


MONE  Y  A    "  CREA  TION  OF  GO  VERNMENTr     29 

will  give  the  most  authoritative  certification  possible 
of  the  amount  and  purity  of  the  metal  in  coin. 

It  should  be  easy  with  this  preparation  to  dispose 
of  one  of  the  most  curious  yet  most  oft-reiterated 
errors  of  the  paper  theory.  It  would  be  well  nigh 
impossible  to  tell  whence  the  error  originated,  but  it 
now  claims  a  sort  of  root  in  the.  constitutional  pro- 
vision that  **  Congress  shall  have  power  to  coin 
money "  and  **  regulate  the  value  thereof ;  "  and  it 
flowers  out  in  such  statements  as,  "  Money  is  the 
creation  of  government,"  "  Money  exists  by  legisla- 
tion," "  Congress  may  make  five  cents  worth  of  pew- 
ter a  legal  tender  for  one  dollar,  and  that  would  be 
Constitutional  money," — all  of  which  are  word  for 
word  utterancesof  paper-money  journals  and  orators. 
Now  it  might  be  an  effective  answer  to  this  sort  of 
talk  to  recall  the  fact  that  money  was  created  before 
there  was  any  government  to  speak  of,  and  that  it 
existed  a  considerable  time  in  advance  of  any  legisla- 
tion whatever  on  the  subject.  But  it  is  worth  while 
to  take  a  d?sh  into  the  real  philosophy  of  the  mat- 
ter. 

"  Congress  shall  have  power  to  coin  money  "  (that 
is,  to  put  money  in  the  shape  of  coins)  and  "  regulate 
the  value  therof."  The  latter  clause  gives  rise  to 
the   misapprehension.     Let  us  light  it   up  with  an 


30  AN  ALPHABET  IN   FINANCE. 

illustration.  Has  Congress  power  to  regulate  the 
value  of  a  bushel  of  wheat  ?  "  Certainly  not !  "  says 
the  trader.  "And,  moreover,  it  would  be  impos- 
sible for  Congress  to  regulate  it.  If  Congress  should 
pass  an  act  to-morrow  declaring  that  the  value  of  a 
bushel  of  wheat  was  ten  cents,  the  merchants  would 
consult  the  market  quotations  all  the  same,  and  pay 
$1.07,  $i.i5>  or  whatever  they  judged  the  proper  rate 
to  be."  Congress  cannot  regulate  the  value  of  a 
bushel  of  wheat.  But  it  has  power  to  say  how  much 
wheat  shall  be  put  into  a  "bushel."  It  might  enact 
that  three  of  the  present  pecks  should  constitute  a 
"  bushel,"  and  three  pecks  would  be  a  legal  bushel 
thenceforth.  And  supposing  this  done,  a  "  bushel,'' 
of  wheat  would  be  "  valued  "  at  a  quarter  less  than 
the  old  standard.  Instead  of  $1.00,  say,  a  **  bushel  " 
would  be  worth  only  75  cents  ;  but  $1.00  would  buy 
just  as  much  wheat  as  before — the  only  change 
being  that  the  amount  would  be  called  a  bushel  and 
a  third,  instead  of  a  "  bushel." 

Congress  has  power  to  regulate  the  value  of 
money  in  precisely  the  way  here  indicated.  It  pre- 
scribes the  quantity  of  gold  that  shall  constitute  a 
"  dollar."  The  use  "  of  the  word  value  "  in  this  con- 
nection is  not  strictly  scientific  ;  but  there  seems  to 
be  little  rational  excuse  for  misinterpreting  it.     The 


MONEY  A   ''CREATION  OF  GOVERNMENTS     3 1 

value  of  money,  the  value  of  a  gold  dollar,  is  deter- 
mined precisely  as  the  value  of  a  bushel  of  wheat  is 
— by  the  labor  expended  in  its  production,  in  con- 
nection with  the  fact  of  desirableness.  But  in  a  cer- 
tain very  true  sense,  Congress  does  regulate  the 
value  both  of  a  bushel  of  wheat  and  a  dollar  coin,  by 
declaring  how  much  of  the  valuable  commodity  shall 
be  put  into  each. 

Why  has  the  State  interfered  in  the  matter  of 
weights  and  measures  ?  Simply  because  the  ancient 
"  grain  "  of  corn  was  an  uncertain  unit  for  the  bal- 
ance, and  because  such  measurements  as  the  "  foot  " 
and  "  hand  ''  left  rather  too  much  to  the  anatomical 
structure  of  the  party  measuring.  As  trade  devel- 
oped, it  became  necessary,  for  the  prevention  of  end- 
less perplexities  and  quarreling,  to  fix  the  standard  of 
weights  and  measures,  and  civilized  governments  did 
so  fix  them  because  the  State  only  could  perform 
that  office  authoritatively.  Now,  when  the  British 
government  **  fixed  "  the  length  of  a*' yard,"  it  might 
as  well  (except  for  circumstances  of  convenience,) 
have  made  it  an  inch  or  two  longer  or  shorter,  or  ten 
times  as  long  or  as  short,  as  it  now  actually  is.  But 
had  it  done  any  of  these  things,  it  would  have  taken 
precisely  as  much  cloth  as  it  does  now  to  make  a 
pair  of  pantaloons.     And  whether  the  quantity  meas- 


32  AN   ALPHABET   IN    FINANCE. 

ured,  by  the  standard,  two-and-a-half  "  yards  "  oi 
two  hundred  and  fifty  **  yards,"  the  price  of  the  gar- 
ment would  be  just  the  same  to  a  penny. 

Congress  regulates  the  "value"  of  a  dollar  just 
as  it  regulates  the  length  of  a  yard.  It  has  "  fixed  " 
upon  25.8  grains  of  gold,  -^  fine,  as  the  standard 
"  dollar."  It  has  power,  constitutionally,  to  alter 
this  standard.  It  can  indeed  make  five  cents*  worth 
of  pewter,  not  simply  **  legal  tender  for  one  dollar," 
but  actually  "  one  dollar.*'  But  in  this  case  a 
"  dollar  "  would  be  worth  exactly  five  cents — and 
what  is  now  a  seven  dollar  silk  hat  would  be  priced 
at  $140.00.  In  a  word.  Congress  defines  the  meaning 
of  the  term  "  dollar,"  so  that  when  people  contract 
to  pay  **  dollars  "  their  creditors  understand  what 
they  are  to  receive  and  what  the  law  will  help  them 
to  secure.  So  then,  if  "  money  is  the  creation  of 
government,"  the  wheat  that  constitutes  a  **  bushel  " 
of  wheat  is  the  creation  of  government ;  and  if 
"money  exists  only  by  legislation,"  then  the  ma- 
nipulated sweetness  that  constitutes  a  "  pound " 
of  yellow  molasses  candy  exists  only  by  legislation 
also. 


CHAPTER  VI. 

HOW  MUCH  GOLDf 

T  will  now  be  in  order  to  clear  up  a  ques- 
tion the  misunderstanding  of  which  leads 
to  some  of  the  gravest  complications  and 
most  destructive  errors.  It  is  the  ques- 
tion, namely :  "  How  much  gold  does  a  country 
want  ?  "  To  many,  this  question  will  seem  simply 
absurd.  They  will  frame  their  sagacious  argument 
something  in  this  sarcastic  style :  "  How  much  gold 
does  a  country  want  ?  Why  how  much  do  you  want 
yourself?  Maybe  you  wouldn't  take  all  you  could 
get  ?  "  And  this  easy  settlement  of  the  difficulty  is 
a  striking  illustration  of  the  superficiality  which 
thousands  display  in  dealing  with  the  money  prob- 
lem. But  suppose  we  should  ask  one  of  these  sages 
how  many  hats  he  wants.  A  rational  answer  would 
be,  **A  beaver  for  fine  days,  a  slouch  for  rainy 
weather,  and  an  old  one  to  wear  in  the  morning 
while  splitting  the  kindling  wood."  **  What !  **  we 
might  respond,  "  Wouldn't  you  take  a  dozen  cases, 


34  AN   ALPHABET  IN  FINANCE. 

now,  of  fine  felt  hats,  if  you  could  get  them  ?  "  And 
he  would  say  **  Certainly,  if  I  could  get  them  for 
nothing." 

There  is  the  precise  point :  **  If  I  could  get  them 
for  nothing."  Why  did  he  not  put  that  "  if"  in  in 
the  case  of  gold  ?  Is  gold  got  for  nothing  ?  Is  it 
furnished  in  some  mysterious  way  to  countries  free 
of  expense?  Evidently,  men  do  not  take  all  the 
gold  they  can  get,  any  more  than  they  take  all  the 
hats  they  can  get.  They  consult  their  need  and 
count  the  cost. 

This  is  all  simple  enough.  Yet  the  misapprehen- 
sion has  a  wonderfully  strong  hold  upon  the  minds 
not  only  of  shallow-pates,  but  of  shrewd  business 
men  also,  merchants  and  even  bankers.  An  export 
of  gold  is  regarded  with  sadness,  an  influx  of  it 
excites  rejoicings.  Both  here  and  in  England,  and 
indeed  in  every  nation  and  in  all  times,  the  mass  of 
people  persist  and  have  persisted  in  being  delighted 
when  the  precious  metal  comes  into  the  country  and 
filled  with  regret  when  it  goes  out  of  it.  And  it  is 
worth  while  to  note  that  this  feeling,  irrational  as  it 
is,  has  just  as  natural  an  origin  as  a  thousand  other 
traditional  but  mistaken  notions.  Gold  being 
adopted  as  money,  it  became  customary  to  esti- 
mate all  wealth  in  terms  of  gold.     Hence,  by  the 


HOW  MUCH   GOLD?  35 

same  sort  of  process  as  that  through  which  the  mere 
symbol  often  comes  to  be  regarded  finally  as  the 
thing  itself,  money,  or  gold,  came  to  stand  in  a 
peculiar  way  for  wealth.  The  idea  has  never  been 
definitely  formulated  ;  but  a  misty  notion  or  feeling 
remains  that  gold  is  wealth  in  a  sense  not  admissi- 
ble respecting  other  goods.  But  if  the  reader  has 
studied  to  any  purpose  the  facts  which  have  been 
here  presented,  he  will  have  seen  that  gold  as  money 
is  simply  a  tool.  It  is  not  desired  for  itself,  but  for 
its  functions.  It  facilitates  exchange.  It  conveys 
value  from  one  hand  to  another.  That  is  all.  It  is 
a  tool.  Now,  how  many  tools  does  a  country  want  ? 
Why,  just  as  many  as  it  has  use  for :  no  more,  no 
less.  Leaving  out  for  the  moment  the  consideration 
of  reserves,  it  would  be  of  no  advantage  to  a  com- 
munity to  double  the  number  of  saws  and  hammers 
possessed  by  it,  after  it  already  had  as  many  as  its 
sawing  and  hammering  work  called  for.  And  if 
rejoicing  over  the  multiplication  of  useless  saws  and 
hammers  would  be  folly,  so  is  it  folly  to  rejoice  over 
an  influx  of  tools  of  commercial  exchange,  irrespect- 
ive of  any  need  of  those  tools. 

A  country  wants  as  much  gold  for  money  as  it 
has  use  for :  that  is,  it  wants  just  enough  to  carry 
on  its  exchanges  easily  and  without  undue  friction. 


36  'AN   ALPHABET   IN   FINANCE. 

Any  more  than  that  is  a  loss.  The  useless,  dead 
surplus  must  have  been  bought  by  other  goods 
which  might  have  been  at  work  producing.  And  we 
shall  see,  in  the  next  chapter,  that  under  natural 
trade  conditions,  a  country  will  always  have  what 
gold  it  requires. 


r 


CHAPTER  VII. 

GOLD   SELF-REGULATING, 

N  our  last  chapter  we  saw  that  a  country 
wanted  just  enough  money  to  carry  on  its 
exchanges  easily  and  without  undue  fric- 
tion. How  are  we  to  discover  how  much 
that  is  ?  Some  sages  there  be  who  have  figured  it 
down  to  a  dollar,  and  declared  the  rate  of  increase 
at  so  much  per  capita  of  population ;  others  find  a 
ratio  to  the  aggregate  wealth  of  the  country ;  still 
others  to  the  aggregate  amount  of  exchanges.  The 
absurdity  of  such  calculations  ought  especially  to 
appear  in  times  like  these,  and  in  a  country  like  this. 
If  A  owes  B  a  dollar,  and  B  owes  C  a  dollar,  and  C 
owes  D  a  dollar — and  so  on  through  the  alphabet — 
and  Z  owes  A  a  dollar,  it  is  evident  that  the  aggregate 
indebtedness  of  twenty-six  dollars  may  be  discharged 
by  passing  a  single  dollar  from  hand  to  hand  around 
the  circle.  But  if  this  alphabet  of  people  all  keep 
bank  accounts,  it  is  evident  that  every  debt  may  be 
canceled  without  any  money  at  all,  simply  by  a  trans- 


38  AN  ALPHABET   IN   FINANCE. 

fer  of  bank  credits.  Thus  we  see  that  the  amount 
of  money  required  in  a  community  depends  upon  the 
rapidity  of  circulation  and  the  extent  to  which  the 
system  of  credit  is  carried.  Among  barbarous  na- 
tions a  large  proportion  of  gold  is  needed,  because 
there  are  no  banks,  and  the  people  do  not  trust  each 
other  by  the  use  of  checks,  notes,  bills,  etc.  In  the 
agricultural  regions  of  civilized  countries,  exchange 
is  very  slow,  banking  is  not  employed  very  much, 
and  a  larger  proportion  of  money  is  required  than  in 
driving  towns.  From  all  which  it  will  appear,  that 
there  is  no  way  of  determining  the  precise  amount 
of  money  which  a  country  will  require.  It  will  vary 
in  different  sections,  change  with  the  seasons,  great- 
en  and  lessen  with  the  vicissitudes  of  trade,  alter 
continually  from  day  to  day. 

But  what  then  ?  Are  we  at  the  mercy  of  fickle 
chance?  Not  in  any  wise.  Was  any  one  ever 
alarmed  because  he  could  not  find  out  how  many 
saws  the  country  required  ?  Did  any  one  ever  wish 
Congress  to  prescribe  the  quantity  of  carts  which  the 
Western  farmers  should  possess  ?  No  ;  these  things 
regulate  themselves  under  the  natural  laws  of  trade. 
If  carpentry  is  brisk,  the  demand  for  saws  increases, 
and  the  manufacturers  supply  as  many  as  are  asked 
for.     When  the  demand  falls  off,  the  manufacturers 


GOLD    SELF-REGULATING.  39 

lessen  the  rate  of  production.  Nobody  fears  **  infla- 
tion" of  saws  or  "  contraction'*  of  saws.  The  laws 
of  demand  and  supply  give  all  the  regulation  neces- 
sary. So  with  carts.  And  so  with  gold.  Gold  is 
bought  just  as  much  as  saws  and  carts  are  bought. 
And  we  shall  never  be  able  to  comprehend  the  laws 
of  its  flow  and  reflow,  the  mystery  of  the  "  movements 
of  bullion,"  the  place  and  influence  of  gold  in  trade, 
until  we  accustom  ourselves  to  regard  it  as  a  com- 
modity of  trade  like  other  commodities. 

But  there  is  with  gold  an  important  peculiarity^ 
its  extreme  portability.  Its  transportation  costs  so 
little,  not  more  than  two  or  three  per  cent  between 
the  most  distant  points,  that  a  demand  much 
slighter  than  would  avail  with  most  goods  brings  it  at 
once  to  the  place  having  need  of  it.  Except  under 
extraordinary  conditions,  the  lack  does  not  become 
severe  enough  to  cause  a  marked  rise  in  value,  as 
might  be  the  case  with  carts  or  saws.  In  specie-pay- 
ing  times  the  common  \yorking  is,  that  the  banks 
foresee  they  will  require  gold,  and  hence  send  for  it. 
On  the  other  hand,  if  the  supply  exceeds  the  de- 
mand, the  surplus  flows  into  the  bank  vaults,  and 
thence  goes  abroad  or  returns  into  circulation  as  the 
exigencies  of  trade  direct. 

But,  some  one  will  object,  the  demand  for  gold 


40  AN  ALPHABET  IN  FINANCE. 

sometimes  increases  with  a  jump,  and  the  supply  can- 
not as  quickly  respond.  Very  true.  And  in  case  of 
saws  and  hammers  this  might  be  a  real  misfortune; 
for  we  cannot  very  well  substitute  cobble-stones  for 
hammers  nor  codfish  spines  for  saws.  But  in  the  case 
of  gold,  the  temporary  stringency  simply  leads  to  the 
freer  use  of  checks  and  to  a  general  expansion  of 
credits.  Observe  that  the  stringency  which  follows 
the  actual  consumption  of  capital  is  not  under  con- 
sideration ;  when  people  have  no  money  because  they 
have  no  property  of  any  sort,  then  an  expansion  of 
credit  is  either  impossible  or  highly  dangerous.  We 
are  speaking  of  a  stringency  which  is  simply  a  dearth 
of  gold — where  the  people  hold  other  commodities 
and  are  not  actually  poor.  In  such  a  contingency, 
checks  multiply,  credit  enlarges,  and  what  gold 
there  is  is  made  to  fly  about  more  quickly,  until  the 
inconvenience  is  relieved  by  an  import  of  the  metal. 
There  would  be  no  such  loss  even  as  follows  a  lack 
of  most  other  tools.  Money  is  the  tool  of  exchange  ; 
but  exchange  at  the  bottom  is  exchange  of  goods, 
and  it  can  be  carried  on  very  extensively  by 
book  accounts,  without  the  interposition  of  money 
at  all. 

Before  leaving  this  part  of  the  topic  the  reader 
should  note,  that  if  the  positions  here  taken  are  right 


GOLD    SELF-REGULATING.  4I 

then  the  paper-money  talk  about  the  advantages  of  a 
*'  non-exportable  currency,"  is  the  purest  kind  of 
bosh.  The  **  exportability  "  of  gold — by  which  curi  - 
ous  term  the  paper  theorists  mean  the  world-wide 
value  of  the  metal — is  one  of  its  most  excellent  quali- 
ties. If  it  could  not  be  exported  nor  imported,  an 
excess  of  it,  either  through  large  production  or  the 
falling  of  general  business,  would  be  "  inflation," 
while  a  lack  of  it  would  be  "  contraction." 

Now  further,  to  bring  out  more  clearly  the  fact 
that  there  is  a  common,  unbreakable  law,  which  rules 
gold  precisely  as  it  rules  other  commodities,  and  to 
include  the  extraordinary  conditions  alluded  to 
above  (even  those  involved  in  the  loss,  by  a  country, 
of  its  specie,  and  concerned  in  the  problem  of  get- 
ting back  that  specie),  let  us  make  the  supposition, 
that  the  gold  in  a  certain  country  increases  largely 
over  the  demand.  Now,  what  happens  ?  Just  what 
happens  in  the  case  of  any  commodity.  Gold  falls 
in  value.  Being  itself  the  measure  of  value,  the  fall 
shows  itself  in  a  rise  of  **  prices."  But  the  increased 
price  of  goods  discourages  foreign  buyers  ;  they  send 
in  no  more  gold.  It  will  not  fetch  its  value.  And 
the  possessors  of  the  gold  in  the  certain  country  find 
that  they  can  buy  more  with  it  abroad  ;  they  export 
it.     Hence  the   balance  is  quickly  restored.     And 


42  AN  ALPHABET  IN  FINANCE. 

supposing  the  supply  of.  metal  to  decrease  largely  in 
proportion  to  the  demand :  then  there  follows  a  rise 
in  the  purchasing  power  of  gold — a  fall  in  prices. 
Foreigners  send  in  the  metal  for  the  low-priced 
goods.  In  a  word  the  "  movement  of  gold  "  follows 
the  same  law  as  the  movement  of  cotton  or  of  iron. 
**  Price  "  means  simply  the  ratio  of  exchange  between 
common  goods  and  money.  Given  much  gold  and 
we  have  high  "  prices  "  in  goods  ;  low  value  for  gold 
in  comparison  with  ordinary  merchandise.  The 
home  market  is  the  better  for  the  merchandise  and 
the  worse  for  the  gold.  Merchandise  flows  in  and 
gold  flows  out  until  an  equilibrium  is  reached.  The 
peculiarity  in  gold  resides  simply  in  its  exceptional 
sensitivity  to  the  call  of  trade.  But  let  us  analyze  a 
little  closer.  We  have  regarded  the  quantity  of 
gold  in  relation  to  the  demand  as  a  cause  working 
upon  prices.  We  may  turn  the  case  over,  and  regard 
prices  as  a  cause  working  upon  the  quantity  of  gold. 
If  the  prices  of  general  commodities  rise  in  a  certain 
country,  the  traders  sell  at  home,  and  the  foreign 
merchants  import  and  do  not  buy,  gold  ceases  to 
come  in,  and  the  home  traders  settle  their  foreign 
balances  with  the  metal  in  preference  to  exporting 
their  high-priced  goods.  If  the  prices  of  commod- 
ities fall,  then  the  home  merchants  seek  foreign  mar- 


GOLD    SELF-REGULATING.  43 

kets,  and  the  foreign  trader  comes  to  purchase ;  gold 
stays  in,  and  flows  in  more  abundantly. 

Now  the  whole  secret  of  the  movements  of  gold 
should  stand  clearly  revealed.  Prices  and  gold  act 
and  react  upon  each  other,  each  in  turn  the  cause, 
the  result  being  both  to  maintain  an  average  level  of 
the  prices  of  commodities  through  the  commercial 
world,  and  to  distribute  the  general  stock  of  gold 
evenly,  according  to  the  requirement,  among  the 
nations.  Without  some  cause  not  present  in  legiti- 
mate trade,  it  would  be  impossible  for  a  country  to 
have  either  too  much  or  too  little  of  the  metal  for 
any  length  of  time ;  completely  impossible  for  it  to 
be  deprived  of  its  stock  entirely.  A  continued  influx 
would  raise  prices  and  the  influx  would  stop  ;  a  con- 
tinued outflow  would  cause  prices  to  fall  and  the 
gold  would  return.  The  United  States  has  lost  its 
gold.  Why  ?  We  shall  see  that  the  cause  exterior 
to  legitimate  trade  was  depreciated  paper.  This 
paper  caused  and  sustained  a  factitious  rise  in  prices 
and  gold  had  to  leave.  The  United  States  wishes 
to  get  back  its  gold.  How  shall  it  do  it  ?  We  shall 
see  by  withdrawing  the  paper,  and  thus  suffering 
prices  to  find  their  true  level.  And  the  same  prin- 
ciple of  action  will  hereafter  apggi^^a^ther  phases. 

^x^  Of  thb'**^ 
TJSI7BRSIT7] 


CHAPTER  VIII. 


GRESHAM'S  LA  W, 


T  is  a  fundamental  law  in  trade  that  men 
will  buy  as  cheaply  as  they  can.  Nobody 
dreams  of  questioning  this.  But  when  the 
law  is  simply  turned  over  and  we  say  that 
men  will  pay  in  what  comes  cheapest  to  them,  then 
there  seems  to  be  some  mysterious  difficulty.  Sup- 
pose cloth  were  money,  and  a  man  owed  another 
ten  yards.  He  goes  to  his  money  chest  and  finds  ten 
yards  which  are  rather  worn  by  much  handling  and 
other  ten  yards  brand  new,  as  good  as  ever  for  cloth- 
ing. Which  ten  yards  will  he  pay  away  for  his  debt  ? 
Certainly  the  worn  and  handled.  It  clears  the  debt 
as  well  as  the  other,  and  the  tailor  will  give  him  more 
for  the  fresh  goods  should  he  trade  there.  The  law 
rules  all  money  circulation.  The  ordinary  holder  of 
an  eagle  does  not,  perhaps,  consider  whether  it  be 
light  or  full  weight.  So  that  it  passes  for  ten  "  dol- 
lars "  it  is  all  the  same  to  him.  But  bullion  dealers, 
bankers  and  brokers,  do  consider,  and  find  a  profit  in 


GRESHAM^S  LAW,  45 

picking  out  the  fresh  coins  and  selling  them  to  gold- 
smiths, or  exporting  them  abroad,  where  the  precise 
amount  of  gold  is  the  only  measure  of  their  value. 
This  law,  a  law  supreme  in  all  trade,  is  known  in  its 
adaptation  to  money  circulation  as  Gresham's  Law, 
Sir  Thomas  Gresham  having  formulated  it  some  three 
centuries  ago. 

The  principle  is  usually  stated  thus :  A  superior 
and  an  inferior  money  cannot  circulate  together;  the 
inferior  will  drive  out  the  superior. 

The  operation  of  this  law  is  evidently  not  confined 
to  money  of  one  kind  of  material,  nor  always  to  the 
standard  coins.  When  the  greenbacks  (from  a  cause 
to  be  hereafter  considered)  fell  in  value  below  gold, 
they  became  an  inferior  money  and  drove  gold  from 
the  channels  of  trade.  Nobody,  to-day,  having  to 
pay  a  debt  of  one  hundred  **  dollars,"  will  select  gold 
for  the  purpose ;  he  can  discharge  the  debt  as  well 
with  a  hundred  **  dollar  "  greenbacks,  although  these 
be  worth  but  ninety  dollars  gold.  If  he  come  into 
possession  of  a  hundred  gold  dollars,  he  will  not  use 
them  to  liquidate  a  common  legal  debt,  but  will  take 
them  to  a  broker  and  exchange  them  for  a  hundred 
dollars  in  greenbacks,  plus  a  premium.  The  broker 
will  send  the  specie  abroad  where  it  is  rated  at  its 
true  value  in  general  trade.     Thus  it  is  certain  that 


46  AN   ALPHABET  IN   FINANCE. 

gold  will  not  remain  in  circulation  as  money  in  this 
country  as  long  as  it  is  under-rated  and  paper  is  over- 
rated ;  it  will  not  circulate  until  the  paper  is  brought 
to  par.  Millions  of  gold  might  be  forced  in  annually 
from  the  government  mint ;  but  if  the  paper  dollar 
remained  at  its  present  value,  the  specie  would  run 
out  like  water  from  a  sieve.  So  long  as  a  man  can 
pay  ninety  cents  on  a  dollar,  he  will  not  pay  a  hun- 
dred cents. 

We  may  add  that  the  intelligent  discussion  of  the 
silver  substitution  question  is  based  on  this  principle 
also.  Should  the  market  value  of  silver  rise  so  high 
that  even  subsidiary  coins  come  to  possess  more 
value  than  they  nominally  express  as  a  part  of  the 
principal  piece  (now  a  paper  '*  dollar,")  then  these 
subsidiary  coins  will  be  melted  or  exported.  They 
will  be  worth  more  as  silver,  than  as  half-greenbacks 
or  quarter-greenbacks. 


CHAPTER  IX. 

THE  DOUBLE  STANDARD   QUESTION, 

HE  law  of  Gresham  makes  the  much- 
debated  problem  of  a  double  standard,  so 
far  as  the  logic  of  it  is  involved,  as  simple 
as  two-and-two.  We  have  assumed,  hither- 
to, that  gold  has  been  accepted  as  the  one  and  the 
best  standard  of  value.  So  it  has  been  by  most  of 
the  advanced  nations.  But  silver  for  a  long  time 
occupied  the  place,  and  does  now  among  some  peo- 
ples. It  was  selected  for  the  same  reasons  as  those 
directing  the  choice  of  gold,  the  different  conclusion 
coming  from  differences  of  circum.stances.  But 
there  are  those  who  contend  that  a  better  standard 
than  either  gold  or  silver  may  be  found  by  joining 
the  two  metals  in  an  equality  of  functions.  "  Con- 
fer upon  both,"  they  say,  "  the  power  of  measuring 
value  according  to  law.  Both  are  liable  to  fluctua- 
tions in  value  ;  if  either  therefore,  may  be  offered  in 
liquidation  of  debt,  that  one  will  always  be  chosen 


48  AN   ALPHABET   IN   FINANCE. 

which  is  the  lower  in  value,  with  the  result  of  cor- 
recting or  mitigating  the  fluctuations." 

Let  us  understand  this  clearly.  If  we  wish  to 
make  gold  the  legal  standard,  we  must  fix  upon  a 
certain  quantity  of  gold  to  be  the  unit.  The 
United  States  has  fixed  upon  25.8  grains,  ^  fine, 
and  given  it  the  name  **  dollar."  Thus  far,  very 
easy.  The  government  might  have  taken  any  num- 
ber of  grains  it  pleased,  might  have  decided  the 
number  by  throwing  dice  ;  it  was  only  necessary  to 
fix  upon  some  well  defined  quantity,  and  establish 
that  as  the  legal  dollar.  But  having  fixed  upon  25.8 
grains,  ^  fine,  as  the  gold  dollar,  how  shall  it  fix  the 
silver  dollar  ?  This  task,  it  will  be  seen,  is  one  of 
extraordinary  difficulty.  It  is  necessary  to  calculate, 
with  a  great  degree  of  exactness,  how  much  silver  is 
equal  in  value  to  25.8  grains  of  gold,  -^  fine.  And 
even  while  the  calculating  is  in  progress,  the  values 
of  the  metals  may  be  changing.  Yet  suppose  it  is 
found  that  412J-  grains  of  silver  (the  old  silver  dollar) 
are  exactly  as  valuable  as  25.8  grains  of  gold— the 
fineness  being  the  same.  This  quantity  is  set  up  as 
a  legal  dollar  at  the  side  of  the  gold  dollar.  Now 
we  have  a  double  standard.  But  presently  silver 
rises  in  value,  gold  remaining  the  same.  A  coin  of 
412^  grains  of  silver  becomes  worth  more  than  a 


THE    DOUBLE    STANDARD    QUESTION.  49 

coin  of  25.8  grains  of  gold.  The  inferior  coin  is 
used  as  money  and  the  superior  coin  goes  to  the  pot 
or  abroad  as  metal.  Then  suppose  gold  rises  above 
silver.  Silver  becomes  the  medium  of  payment. 
Or  suppose  the  metals  do  not  rise  but  fall.  The 
"  dollar  "  of  the  lower  value  always  becomes  the 
money  of  circulation,  and  hence  the  practical  stand- 
ard of  value.  And  here  the  advocates  of  the  double 
standard  find  a  "  compensatory  "  or  "  equilibratory  " 
action.  With  every  fluctuation  in  the  relative  values 
of  the  metals,  the  function  of  money  falls  upon  the 
lower  metal,  the  other  metal  flying  away.  But  if 
the  lower  metal  comes  into  greater  demand,  it  must 
rise  in  value.  Hence  the  tendency  is  to  a  continual 
return  to  the  balance.  Theoretically  this  is  true 
enough.  So  long  as  the  values  of  the  two  metals 
varied  with  approximately  equal  fluctuations  about 
the  same  middle  or  average  point,  the  equilibratory 
action  would  be  obtained.  Nor  would  the  principle 
fail  should  either  metal  have  a  tendency  to  occa- 
sional heavy  dashes  upward.  The  rises  are  not  the 
disturbing  cause.  The  metal  remaining  below  be- 
comes for  the  time  the  standard.  But  if  either 
metal  should  be  subject  to  sudden  severe  depres- 
sions, the  "  double  standard  "  would  have  to  bear 
them.  The  sinking  metal  carries  the  standard  down 
3 


50  AN   ALPHABET   IN   FINANCE. 

with  it.  Or  if,  after  the  ratio  of  values  has-been 
fixed  (as  25.8  grains  of  gold  to  412J  grains  of  silver), 
one  of  the  metals  falls  below  the  other  and  does  not 
rise  to  it  again,  then  the  lower  metal  becomes  per- 
manently the  exclusive  standard  and  the  other  is 
permanently  driven  away. 

These  principles — simple  developments  of  Gresh- 
am's  Law,  which  itself  is  a  simple  adaptation  of  a  com- 
mon law  of  trade, — have  a  most  important  applica- 
tion  to  the  money  question  in  its  present  phase  in 
this  country.  The  proposition  is  made  to  "  return  to 
the  double  standard  "  by  re-establishing  the  old  silver 
dollar,  412^  grains,  as  a  standard  on  a  par  with  gold. 
But  41 2 J  grains  of  silver  is  no  longer  an  equivalent 
for  25.8  grains  of  gold.  Silver  has  fallen  some  twenty 
per  cent.  There  would  be,  then,  no  "  return  to  the 
double  standard,"  but  a  change  to  the  silver  stand- 
ard, with  this  standard  lowered  twenty  per  cent  from 
its  old  point.  To  return  to  the  double  standard  now, 
it  will  be  necessary  to  discover  the  present  ratio  be- 
tween the  values  of  gold  and  silver.  The  old  prob- 
lem must  be  worked  out  for  the  new  conditions. 
How  much  silver  is  to-day  equal  to  25.8  grains  of 
gold  ?  And  we  find  that  the  silver  dollar  to-day,  to 
be  a  standard,  should  contain  something  like  $15 
grains.     But  we  may  be  permitted  to  doubt  if  those 


THE    DOUBLE    STANDARD    QUESTION.  5 1 

who  clamor  for  the  "  double  standard  "  would  be  en- 
tirely contented  with  this  response  to  their  desires.* 
Nor  would  this  adjustment  satisfy  any  well-informed 
person,  for  the  simple  reason  that  silver  is  at  the 
present  time  one  of  the  most  unreliable  of  valuable 
things.  We  might  to-day  fix  the  ratio  at  25.8  grains 
of  gold  to  5 1 5  grains  of  silver,  and  find  that  ratio  all 

wrong  to-morrow.     And  finally  the  general  experi- 
■» 
ence  of  commercial  nations   is  against  the  double 

standard.     The  *'  compensatory  "   action  practically 

results  in  hurtful  changes  of  the  whole  body  of  the 

currency  from  one  metal  to  another,  and  always  in 

the  degrading  direction. 

*  For  a  broader  discussion  of  the  silver  question,  see  Chaptei 
XXVII. 


CHAPTER   X. 

THE    CREDIT   SYSTEM. 

F  we  have  fully  mastered  the  principles 
which  have  been  sketched  in  the  previous 
chapters,  we  are  now  prepared  to  enter  sys- 
tematically upon  the  consideration  of  thos'e 
devices  which  have  been  naturally  developed  under 
the  increase  and  complication  of  civilized  trade,  for 
effecting  exchanges  more  rapidly,  more  safely,  more 
economically,  and  in  greater  bulk,  than  would  be 
possible  through  the  simple  mediumship  of  the  pre- 
cious metals.  But  it  is  of  course  beyond  the  purpose 
of  these  pages  to  discuss  minutely  the  vast  and  rami- 
fied mechanism  of  the  modern  system  of  exchange. 
As  we  have  sought  only  for  the  A,  B,  and  C  of 
metallic  currency,  so  now  we  shall  aim  simply  to 
outline  the  general  principles  which  govern  the 
action  of  the  other  instruments  of  exchange,  spe- 
cializing only  in  those  lines  which  make  very  directly 
to  the  solution  of  the  "  specie  payment  **  question. 
In  the  opening  chapters  of  this  book  we  saw  that 


THE    CREDIT    SYSTEM.  53 

the  principal  functions  of  money  were  those  of  a 
measure  of  value,  a  medium  of  exchange,  a  standard 
of  value,  and  a  store  of  value.  The  exigencies  of  trade 
require  that  these  functions  shall  be  in  some  way 
performed.  But  a  little  examination  will  reveal  the 
fact  that  it  is  not  necessary  that  they  should  all  be 
performed  by  the  same  thing.  That  which  in  itself 
fulfills  all  these  functions  is  known  distinctively  as 
money;  and  there  are  very  excellent  reasons  for 
confining  the  use  of  the  word  to  that  one  thing — in 
the  United  States,  coined  gold.  But  money  is 
not  the  only  tool  of  trade.  Other  tools  have  been 
found  and  devised  which  are  far  more  efficient  than 
gold  in  the  performance  of  certain  offices.  Of  these 
tools  we  are  concerned  with  those  only  which  perform 
the  office  of  a  medium  of  exchange.  They  consist 
substantially  of  various  devices  of  pledging  and 
accounting,  the  entire  system  resting  on  what  is 
called  "  credit."  As  was  observed  in  Chapter  I,  we 
shall  see  that  none  of  these  devices  does  away  with 
the  necessity  of  real  mon-ey — the  valuable  commod- 
ity. Money  stands  behind  all  these  forms  of  credit, 
performing  its  supreme  offices  as  a  measure  and 
standard    of  value. 

"  Credit "   is   a   term    which   has  been   used    in 
such  absurd  ways  that  it  is  necessary  at  the  start 


54  AN   ALPHABET   IN   FINANCE, 

to  make  certain  that  its  meaning  is  understood. 
If  we  might  accept  much  of  the  current  talk, 
"credit  "  is  some  mysterious,  tremendous,  self-cen- 
tred, uncreated  power,  whose  achievements  are  as  un- 
explainable  as  they  are  boundless.  But  if  we  analyze 
the  particular  examples  of  credit  which  come  within 
our  individual  observation,  we  shall  presently  remark 
that  credit  is  nothing  more  nor  less  than  the  defer- 
ring of  payment  by  agreement  with  the  creditor. 
Credit,then,is  limited  by  the  ability  to  pay,  and  de- 
termined specifically  in  each  case  where  it  is  given 
and  taken  by  the  particular  values  exchanged.  Sim- 
ple as  are  these  facts,  they  are  continually  overlooked 
or  ignored.  We  hear  talk  every  day  about  "  basing  " 
a  paper  currency  on  the  '*  credit  "  of  the  government, 
one  part  of  the  scheme  being  that  the  government 
shall  never  pay  anything  for  the  notes  so  issued.  But 
if  a  note  for  one  dollar  is  issued  on  "  credit,"  the  im- 
plication is  that  one  dollar  will  at  some  time  be  paid 
for  the  note.  We  hear  talk  also  as  if  "  credit  "  could 
be  shovelled  out  to  the  **  workingman  "  and  others 
in  some  way,  like  coals  or  potatoes ;  and  the  govern- 
ment is  loudly  called  upon  to  engage  in  the  benev- 
olent occupation.  A  dash  of  common  sense  ought 
to  sweep  out  all  these  vaporous  notions.  Credit  is, 
in  the  first  place,  made  possible  only  by  the  posses- 


THE    CREDIT    SYSTEM.  55 

sion  of  actual  property,  or  the  rational  appearance  of 
ability  to  pay  ;  and,  in  the  second  place,  it  never 
takes  on  a  real  existence  except  by  the  pledge  on 
the  one  side  of  a  specific  value  and  the  expecta- 
tion on  the  other  of  receiving  that  value.  The  clear 
understanding  of  this  matter  in  the  beginning  will 
aid  us  wonderfully  to  comprehend  the  development 
of  the  methods  of  exchange. 

In  the  beginning  was  barter.  The  inconveni- 
ences of  barter  suggested  the  adoption  of  a  middle 
commodity,  gold,  and  the  carrying  on  of  trade  by 
double  barter.  Lastly  we  find  that  the  intermediary 
process  of  bartering  our  goods  for  gold  and  barter- 
ing the  gold  again  for  the  goods  of  others,  can  be, 
as  it  were,  performed  on  paper — to  the  great  saving  of 
time,  trouble  and  expense.  The  all-important  prii> 
ciple  involved  in  these  devices  is,  the  acceptance  of 
a  promise  to  pay  value  at  some  future  time,  the  value 
being  expressed  in  terms  of  the  measure,  money ; 
and  the  receipt,  upon  the  maturity  of  the  promise,  of 
some  value  other  than  money,  the  value  again  being 
estimated  by  the  standard  measure. 


CHAPTER  XL 

IS  A  BANK-NOTE  MONEY? 

F  the  subject  of  paper  currency  is  "  as  incom- 
prehensible as  the  differential  calculus,"  its 
first  principles  are  as  simple  as  are  those  of 
that  intricate  mathematical  study.  What 
is  a  bank-note  ?  It  is  a  promissory  note,  issued  by  a 
banker,  binding  him  to  pay  on  demand  to  the  bearer, 
without  question,  the  amount  of  lawful  money  named 
upon  the  face.  It  bears  no  interest,  nor  does  any 
liability  for  its  ultimate  redemption  rest  upon  those 
through  whose  hands  it  has  passed.  There  is  no 
difficulty  in  comprehending  these  plain  matters  of 
fact,  yet  it  is  simply  the  failure  to  hold  them  clearly 
in  mind  which  is  the  occasion  of  most  of  the  errors 
by  which  the  subject  is  confused.  For  instance,  if  a 
bank-note  is  a  promise  to  pay  money,  then  it  is  not 
itself  money.  But  bank-notes  are  called  "  money  " 
continually,  and  because  so  called,  are  regarded 
practically  as  the  same  in  character  with  gold,  and 
hence  are  expected  to  perform  all  the  functions  of 


IS  A    BANK-NOTE   MONEY?  57 

gold,  and  to  obey  the  same  laws.     This  error  being 
a  vital  one,  let  us  dispose  of  it  at  once. 

Many  writers  affect  to  settle  the  matter  lightly  by 
calling  it  a  mere  question  of  a  word.  Very  good  ;  we 
may,  if  we  please,  consider  it  a  mere  question  of  a 
word  :  but  half  the  intellectual  blunders  of  men  have 
their  root  in  words  and  the  misapprehension  of  their 
meaning.  It  may  be  very  true  that  people  can  apply 
the  word  ^'  money  "  to  bank-notes  if  they  so  wish  ; 
but  they  do  not  thus  annihilate  the  difference  be- 
tween gold  and  a  promise  to  pay  gold,  and  the  mis- 
chief is  that  they  think  they  do.  Thus  an  article  on 
"  money "  in  the  American  Cyclopedia — in  which 
work  of  popular  reference,  if  anywhere  in  print,  the 
utmost  accuracy  of  statement  should  prevail — is  vi- 
tiated through  and  through,  and  made  a  breeder  of 
most  dangerous  errors,  by  this  trifling  difference  of 
opinion  as  to  the  application  of  a  word.  "  Any- 
thing," it  says,  **  which  freely  circulates  from  hand  to 
hand,  as  a  common,  acceptable  medium  of  exchange 
in  any  country,  is  in  such  country  money,  even 
though  it  ceases  to  be  such,  or  to  possess  any  value,  in 
passing  into  another  country.  In  a  word,  an  article 
is  determined  to  be  money,  by  reason  of  the  per- 
formance by  it  of  certain  functions,  without  regard  to 
its  form  or  substance." — And  the  article  goes  on  into 
3* 


58  AN  ALPHABET   IN   FINANCE. 

that  cloud-land  where  figures  of  speech  are  mistaken 
for  scientific  definitions,  and  symbols  generally  for 
substances.  The  blunder,  obviously,  is  the  common 
one  of  forgetting  that  the  function  of  a  medium  of 
exchange  is  not  the  only  one  which  must  be  dis- 
charged to  carry  on  trade.  The  function  of  a  meas- 
ure of  value  is  more  important  still.  Commodities 
may  be  exchanged  without  the  intervention  of  a 
medium ;  they  cannot  be  without  the  use  of  some 
sort  of  measure  of  value.  If  we  choose  to  call  that 
"  money"  which  acts  merely  as  a  medium,  we  may 
do  so ;  but  then  we  must  find  some  other  term  for 
that  which  acts  as  a  measure  of  value. 

Furthermore,  if  bank-notes  are  "  money  "  because 
they  operate  as  a  medium  of  exchange,  then  checks 
also  are  money,  and  bills  of  exchange  are  money, 
and  book-accounts  are  money,  and  spoken  words 
are  money,  and  nods  of  the  head  on  'Change  or  at  an 
auction  are  money — since  all  these  things  and  signs 
can  thus  operate,  and  can  invoke  the  law,  even  as 
bank-notes,  to  compel  the  fulfillment  of  their  prom- 
ises. But  there  is  a  vital  distinction  between  these 
symbols  and  gold.  Gold  is  actual  property  ;  it  holds 
the  value  stipulated  for  in  itself ;  the  receiver  of  it 
IS  paid,  and  need  look  no  further  for  the  settlement 
of  his  claim  for  the  goods  he  has   sold.     But  the 


IS   A    BANH-NOTE    MONEY?  59 

bank-note  is  an  order  on  a  banker  which  may  or  may 
not  be  honored,  the  check  rests  upon  the  drawer, 
and  book  accounts  and  spoken  words  are,  in  pre- 
cisely the  same  way,  only  evidences  of  indebtedness, 
depending  for  their  goodness  upon  the  ability  and 
willingness  of  the  debtor  to  pay  and  upon  the  effi- 
ciency of  the  laws  to  enforce  payment. 

We  repeat,  all  these  things  may  be  called  "  mon- 
ey," but  they  are  not  therefore  converted  into  gold, 
or  into  commodities  possessing  value  of  themselves. 
And  if  they  have  not  value  of  themselves,  then  they 
cannot  of  themselves  discharge  the  absolutely  neces- 
sary function  of  a  measure  of  value. 

The  "  mere  question  of  a  word,"  then,  becomes 
the  question  whether  we  shall  have  a  term  by  which 
the  absolute,  non-dependent  instrument  of  exchange 
shall  be  distinguished  from  those  which  rest  upon 
credit ;  or  whether,  confounding  all  the  instruments 
under  one  title,  we  shall  attempt  to  comprehend 
the  intricate  mechanism  of  finance  without  any  dis- 
tinctive name  for  the  most  important  part  of  the 
machine.  Suppose  people  should  refuse  to  distin- 
guish between  a  house  and  a  title-deed  of  that  house, 
and  insist  on  calling  both  "  property."  Then  if  the 
house  is  worth  $20,000,  it  will  appear  that  the  owner 
who   owns  also   the  deed,  has  "  property  "  to  the 


6o  AN   ALPHABET   IN   FINANCE. 

amount  of  $40,000.  Precisely  this  ridiculous  blunder 
is  made  when  bank-notes  and  the  gold  in  which  they 
are  redeemable  are  both  called  money.  It  comes  to 
pass  that  bank-notes  are  counted  as  self-contained 
money,  that  is,  wealth  ;  and  thus  it  is  held  that  the 
destruction  of  bank-notes  is  the  destruction  of  wealth, 
and  the  increase  of  bank-notes  is  the  increase  of 
wealth.  An  Irish  mob,  wishing  to  punish  an  unpop- 
ular banker,  possessed  themselves  of  all  the  notes 
issued  by  him  which  they  could  gather  together,  and 
making  a  bonfire,  cast  them  into  the  flames,  dancing 
about  the  immolating  altar  meanwhile,  in  ecstasy 
over  the  financial  ruin  of  their  enemy !  We  may  be 
amused  at  this  ludicrous  blunder,  but  their  reason- 
ing can  be  paralleled  over  and  over  in  the  every-day 
talk  of  people  supposed  to  possess  common  sense, 
and  to  be  particularly  sagacious  in  matters  of 
finance. 

Bank-notes,  checks,  all  forms  of  promises  to  pay 
lawful  money,  are  radically  different  from  coin.  The 
difference  is  similar  to  that  between  a  house  and  a 
title-deed  to  a  house.  The  paper  promises  are  the 
legal  evidences,  which  the  courts  will  sustain  to  com- 
pel the  stipulated  payment.  The  coin  is  the  actual 
substance  for  which  a  trader  has  given  his  goods,  and 
by  which,  therefore,  the  value  of  his  goods  is  meas- 


IS  A    BANK-NOTE    MONEY?  6 1 

ured-  If  Smith  gives  Brown  a  piece  of  land  and  re- 
ceives in  return  a  title-deed  to  a  house,  we  do  not 
examine  the  title-deed  to  determine  the  value  Smith 
puts  on  his  land ;  we  examine  the  house.  The 
title  might  say  $5,000,  $10,000,  or  $50,000,  (those  who 
have"  been  tricked  by  "  operating  "  real-estate  trans- 
fers will  appreciate  the  flexibility  of  titles  in  this 
particular),  but  Smith  trades  his  land  only  for  the 
house,  and  the  house  measures  the  value  of  that 
land.  So,  also,  with  a  bank-note :  it  cannot  be  a 
measure  of  value  ;  the  substance  to  which  it  gives 
title  is  the  measure.  These  things  being  ^so,  there 
ought  to  be  no  question  as  to  the  wisdom  of  limit- 
ing the  application  of  the  term  "  money "  to  this 
coined  gold — or  to  whatever  commodity  has  been 
adopted  as  money  in  the  country  concerned.  Let 
us  so  Hmit  it.  At  least,  let  us  hold  clearly  in  mind 
the  distinction  between  the  scientific  and  the  popu- 
lar use  of  the  word. 


CHAPTER  XII. 

''CONVERTIBLE''  BANK-NOTES. 

s^lANK-notes  not  being  money,  how  is  it  that 
they  are  able  to  act  as  a  medium  of  ex- 
change ?  If  we  confine  our  attention  to 
convertible  bank-notes  —  convertible,  we 
mean,  into  gold — the  answer  is  a  simple  one.  Peo- 
ple are  willing  to  sell  on  credit — that  is,  with  payment 
deferred.  Mr.  A  sells  goods.  He  does  not  need  gold ; 
he  is  willing,  therefore,  to  accept  in  place  of  it  a  prom- 
issory note  upon  which  he  can  get  gold  whenever  he 
desires.  He  buys  of  Mr.  B.  Mr.  B  has  no  use  for 
actual  gold  either,  and  he  willingly  receives  the  bank- 
note from  A,  passing  it  on  again  to  C, — and  so  forth. 
Now,  what  is  the  condition  which  makes  this  circula- 
tion possible  ?  It  is  the  positive  knowledge  or  belief 
that  the  gold  is  ready  at  the  bank  for  the  redemp- 
tion of  the  note  at  any  moment  that  the  same  may 
be  presented.  As  a  rule,  the  gold  (or  the  other  com- 
modity used  for  money)  is  not  wanted  for  itself. 
What  is  wanted  is  a  thing  possessing  a  well  known, 


CONVERTIBLE    BANK-NOTES,  63 

reasonably  fixed,  and  generally  current  value,  in  ex- 
change for  which  the  holder  can  obtain  goods  as  valu- 
able as  those  he  gave  for  it.  A  bank-note  is  a  claim 
for  a  definite  amount  of  that  supreme  commodity 
which  has  the  qualities  of  recognized,  fixed  and  uni- 
versal value.  So  long  as  it  remains  above  suspicion, 
therefore,  it  will  readily  circulate,  until  it  is  deposited 
or  falls  into  the  hands  of  some  one,  who,  desiring  gold 
for  manufacture,  or  exportation,  or  other  special  pur- 
pose, presents  it  at  the  bank  for  redemption. 

This  is  as  simple  as  A  B  C.  The  bank-note  is 
able  to  be  a  medium  of  exchange  on  a  par  with  gold, 
as  long  as  it  is  a  perfectly  good  evidence  of  a  perfectly 
sound  gold  debt,  which  can  be  collected  at  once  and 
without  trouble.  A  note  for  a  gold  dollar  is  as  good 
as  a  gold  dollar  as  long  as  you  can  get  the  gold  dol- 
lar for  it.  But  it  is  very  well  known  that  a  bank  of 
issue  keeps  on  hand  an  amount  of  gold  sufficient  to 
redeem  only  a  portion  of  its  outstanding  notes — 
anywhere  from  a  tenth  to  a  half.  The  discovery  of 
this  fact  recently  by  paper-money  advocates,  has 
driven  many  of  them  into  a  state  of  frightful  agita- 
tion, and  it  may  not  be  amiss  to  quote  here  from  the 
most  prominent  organ  of  the  paper  movement,  the 
Cincinnati  Enquirer,  Speaking  of  the  proposition  to 
require  the  National   Banks,  as  a  preparation  to  re- 


64  AN   ALPHABET   IN   FINANCE. 

sumption,  to  accumulate  gold  to  the  amount  of  one- 
third  of  their  circulation,  it  said,  with  withering  sar- 
casm, "  What  a  magnificent  security  !  Every  National 
Bank  ten  dollar  note  is  worth  ten  dollars  in  coin,  be- 
cause behind  it  there  are  three  dollars  in  specie  for 
every  ten  issued  in  paper ! "  Now  it  would  seem 
that  a  school  boy  would  be  ashamed  of  such  a  blun- 
der as  this.  When  a  merchant  draws  a  promissory 
note  acknowledging  a  debt,  does  the  man  to  whom 
it  is  offered  want  to  be  assured  of  the  amount  of 
money  the  merchant  then  has  in  his  pocket  ?  Not  at 
all.  The  merchant  might  have  not  even  a  nickel 
about  him  nor  a  dime  in  the  bank,  and  yet  his  note 
be  good  for  a  thousand  dollars.  Why  ?  Because  he 
possesses  the  property,  the  merchandise,  the  things 
of  value,  by  the  sale  of  which  he  can  obtain  the 
money  when  the  note  is  due.  The  notes  of  a  mer- 
chant have  a  particular  day  for  payment.  The 
drawer  thus  knows  when  they  will  be  presented  for 
redemption,  and  need  not  provide  the  cash  except  as 
the  special  times  arrive.  But  the  notes  of  a  bank 
are  payable  at  any  time.  Hence  the  necessity  for  the 
banker  to  keep  ready  from  day  to  day  so  much  cash 
as  experience  and  calculation  tells  him  he  will  need 
to  meet  the  demands.  But  back  of  both  the  com- 
mercial note  and  the  bank  note  is  the  same  security 


CONVERTIBLE    BANK-NOTES.  65 

— property,  things  of  value,  which  can  be  sold  to 
procure  money  to  redeem  the  paper  promises.  The 
mistake  of  the  Enquirer  is  in  counting  the  bank's 
simple  "  reserve  "  of  ready  cash  as  its  total  resource 
for  the  security  of  its  notes. 

Understanding  these  things,  we  should  be  able  to 
see  clearly,  precisely  what  the  advantages  are  of  the 
employment  of  a  paper  currency  in  lieu  of  gold.  If 
it  were  necessary  to  keep  in  the  bank  a  dollar  in  gold 
for  every  dollar  in  notes  issued,  there  would  be  no 
economy  whatever  in  the  system — except  that  aris- 
ing from  mere  convenience,  and  that  from  the  saving 
of  the  wear  of  gold  coin.  But  as  it  is,  one-third  (let 
us  say)  of  the  property  against  which  the  notes  are 
given  can  be  turned  into  gold  for  the  reserve,  and 
two-thirds  put  in  the  form  of  productive  capital. 
Supposing,  for  the  sake  of  illustration,  that  John 
Smith  has  $ioo,coo  in  gold  coin,  and  with  this  capital 
estabhshes  a  bank  of  issue.  This  is  not  the  process, 
of  course,  but  the  principle  may  be  thus  exemplified. 
He  may  issue  notes  to  the  amount  of  $100,000  and 
these  notes  will  be  as  good  as  gold  for  the  ordinary 
purposes  of  trade.  He  has  a  gold  dollar  ready  for 
every  note  for  a  dollar  that  he  puts  out.  But  pres- 
ently he  discovers  that  there  is  no  probability  of  the 
simultaneous  presentation  of  the  entire  $100,000  of 


66  AN  ALPHABET   IN   FINANCE. 

notes.  He  finds,  say,  that  even  in  times  of  alarm 
only  $30,000  notes  can  be  returned  to  him  within  a 
short  period.  Hence  he  is  perfectly  safe,  his  notes 
are  perfectly  secure,  if  he  takes  $70,000  of  his  gold 
and  lends  it  in  such  a  way  that  he  can  get  it  back 
without  delay  in  case  of  need.  Supposing  that  capi- 
tal put  in  the  New  York  Grain  Elevator  Company 
can  easily  be  got  out  again,  he  may  lend  his  $70,000 
there,  thus  aiding  a  great  public  enterprise.  The 
$30,000  coin  reserve  will  meet  all  ordinary  wants, 
and  should  a  "  run*"  come,  he  will  immediately  sell 
his  Grain  Elevator  shares,  and  be  ready  with  the  pro- 
ceeds to  meet  all  his  $100,000  of  notes  as  they  are 
presented.  In  this  way,  the  whole  country  receives 
benefit  from  a  properly  managed  paper  circulation. 
A  large  percentage  of  what  otherwise  would  lie  idle 
in  bank  vaults,  in  safes  and  money  drawers,  is  added 
to  the  producing  capital  of  the  country.  In  our 
National  Bank  system  of  note  issue,  it  is  added  to 
the  capital  loaned  the  government.* 

But  is  there  anything  in  all  this  to  prove,  or  even 

*  The  fact  that  the  capital  for  the  security  of  the  National  Bank 
notes  is  invested  in  government  bonds,  makes  it  difficult  for  some  to 
see  how  the  country  saves  any  productive  capital  through  the  paper 
of  these  banks.  The  inflation  sheets  never  weary  of  shouting  that 
the  government  pays  the  banks  for  the  privilege  of  holding  their 
property  in  safe  keeping.  This  is  their  manner  of  stating,  that  the 
government  pays  interest  on  its  bonds,  and  that  it  compels  the  banks 


CONVERTIBLE    BANK-NOTES.  6/ 

suggest  rationally,  that  the  entire  amount  of  gold 
could  be  dispensed  with  ;  that  notes  could  be  issued 
on  the  "  basis  "  of  miscellaneous  merchandise,  or  on 
the  so-called  "  credit "  of  the  government,  without 
any  pledge  or  provision  for  their  payment  in  any 
definite  amount  of  any  valuable  thing?  The  paper- 
money  theorist  thinks  he  can  mark  a  process  by 
which  paper,  or  what  he  calls  '*  credit  " — is  being 

to  put  their  capital  for  a  circulating  currency  in  these  bonds — ^holding 
the  samein  the  government  vault  that  there  may  be  no  question  as  to 
the  integrity  of  the  security.  The  only  answer  necessary  is,  that  the 
capital  originally  given  for  these  bonds  was  applied  in  the  destruction 
of  war,  yet  was  in  essence  capital  of  production,  nevertheless.  It  did 
not  produce  in  the  common  material  way.  It  was  employed  in  con- 
serving the  government.  The  capital  expended  and  "destroyed"  in 
putting  out  fires,  or  in  procuring  police  service,  is,  in  essence,  produc- 
tive capital.  Now  the  present  holder  of  a  government  bond  may  not 
be,  perhaps,  the  very  person  who  loaned  directly  to  the  government  in 
war  time.  But  if  he  is  not,  then  the  pei'son  who  did  so  loan,  has  been 
paid  by  him  ;  he  is,  in  effect,  the  person  whose  capital  was  expended 
in  the  operations  of  war.  It  seems  almost  necessary  to  apologize  for 
explaining  matters  so  simple,  but  there  are  cords  of  floating  print  on 
this  subject  which  will  justify  even  the  demonstration  of  an  axiom. 
Even  accepting  the  fallacious  reasoning  about  capital  used  in  destruc- 
tion, every  man  knows  that  the  debt  #f  the  government  must  be 
carried.  If  the  National  Banks ^  carry  with  their  capital  a  certain 
part,  other  capital  to  a  like  amount  is  left  to  seek  investment  in  grain 
elevators,  mines,  railways  and  what  not.  Finally,  the  National 
Bank  system  was  instituted  in  1864,  in  order  to  make  a  special  mar- 
ket for  government  bonds.  The  government  credit  was  impaired, 
it  could  not  borrow  fast  enough  ;  it  adopted  the  expedient  of  en- 
couraging the  establishment  of  banks  of  circulation,  whose  notes 
should  be  secured  by  government  bonds. 


68  AN  ALPHABET   IN   FINANCE. 

gradually  substituted  for  money  having  intrinsic 
value,  the  end  of  the  process  to  be  the  entire  displace- 
ment of  the  latter  money  by  the  **  credit  money." 
But  if  we  analyze  a  little  we  shall  find  that  this  pro- 
cess has  not  even  begun.  The  paper  note  never 
really  takes  the  place  of  gold  ;  it  only  discharges  one 
of  its  functions  ;  it  is  only  a  substitute  for  one  of  the 
qualities  of  the  gold  coin.  The  gold  stands  behind 
still,  discharging  the  functions  of  a  measure  of  value 
and  a  standard  of  value.  And  the  qualities  by 
which  these  functions  are  discharged  are  simply  in- 
dispensable. 


CHAPTER  XIII. 

CONVERTIBLE  NOTES   SELF-REGULATING. 

N  our  study  of  gold  currency  we  saw  that 
under  the  natural  laws  of  trade,  in  the  ab- 
sence of  false  restrictions,  a  country  will 
always  have  just  as  much  gold  as  it  requires 
and  no  more.  An  excess  will  find  its  way  into  the 
bank  vaults,  and  thence  be  exported.  A  deficiency 
will  create  a  demand  which  will  be  supplied  from 
abroad,  precisely  as  the  demand  for  any  commodity 
is  supplied.  Gold  currency,  in  respect  of  quantity, 
is  naturally  regulated  by  the  operations  of  the  laws 
of  trade.  Is  a  convertible  paper  currency  naturally 
regulated  also  ?  This  is  an  important  inquiry,  since 
it  involves  the  rationale  of  the  "  more  money  "  cry 
not  only  of  the  paper  theorists,  but  of  many  who 
would  scorn  the  thought  of  sharing  in  inflation  ideas. 
Bank-notes  are  issued  by  bankers :  cannot  the 
bankers,  then,  determine  of  themselves  how  many  or 
how  few  bank-notes  shall  be  thrown  into  the  busi- 
ness channels  of  the  country  ?     Evidently  they  have 


70  AN   ALPHABET   IN   FINANCE. 

power  to  contract  their  circulations,  but — except  for 
prudential  reasons,  which  are  good  reasons  for  the 
public  also — their  interest  is  against  contraction. 
Every  note  withdrawn  is  redeemed  with  so  much 
capital  taken  from  the  work  of  production.  Where- 
fore, in  pursuance  of  their  own  good,  the  bankers  can 
be  trusted  to  supply  as  many  notes  as  they  think 
the  public  need,  provided  they  have  the  ability.  So 
far  the  natural  laws  of  trade  tend  to  regulate,  pre- 
cisely as  they  do  for  the  supply  of  hats,  or  tack-ham~ 
mers  or  soda-crackers.  But  supposing  the  banks  un- 
derestimate the  needs  of  business,  or  contract  their 
circulation  unwisely,  what  happens?  A  frightful 
stringency?  a  strangulation  of  trade?  a  general 
crash? — see  inflation  organs — the  "destruction  of 
values?"  the  delivery  of  the  country  into  the  hands 
of  the  "  money  tyrants  ?"  Not  at  all.  The  consequen- 
ces are  simply  those  which  follow  a  dearth  of  gold  :  a 
freer  use  of  checks  and  book  accounting  and  general 
credits,  and  an  importation  of  gold  if  this  prove 
necessary.  In  the  direction  of  making  good  deficien- 
cies, therefore,  a  convertible  paper  currency  is  regu- 
lated, as  far  as  wise  regulation  is  possible,  by  the  self- 
interest  of  the  issuers  ;  while  the  other  credit  appli- 
ances and  the  gold-  currency  stand  always  ready  to 
press  into  the  gaps. 


CONVERTIBLE  NOTES  SELF-REGULATING.       /I 

But  how  is  it  in  the  other  direction  ?  Cannot 
the  bankers  over-issue,  and  cause  an  inflation,  as 
certain  inflationists,  with  pleasing  consistency,  pro- 
fess to  fear  ?  This  question  ought  to  be  readily  dis- 
posed of.  What  is  an  over-issue?  An  issue  of 
more  notes  than  the  pubHc  have  need  of — more  than 
they  want.  But  the  public  are  not  compelled  to  ac- 
cept bank  notes.  If  they  do  not  need  them,  do  not 
want  them,  they  can  collect  their  debts  of  the -bank 
in  gold,  and  carry  what  notes  they  have  to  the  bank 
for  redeniption.  Inflation  of  the  currency  with  con- 
vertible notes  is  simply  impossible. 

There  is  a  certain  kind  of  loose  talk  about  *'  infla- 
tion," which,  since  it  is  often  hurled  at  the  bank- 
note in  this  connection,  and  is  used  generally  as  an 
argument  against  the  system,  it  will  be  well  to  notice 
in  this  place.  The  gist  of  it  is  that  at  certain  periods 
we  find  the  banks  lending  wildly  to  speculative  ven- 
tures ;  that  as  the  result  of  this  "  inflation  of  credits" 
speculation  runs  riot,  until  the  bubble  bursts,  and 
the  speculators  and  the  banks  go  down  together; 
and  then,  the  resources  of  the  banks  being  swallowed 
up,  their  notes  become  merely  the  evidences  of  bad 
debts. 

A  part  of  this  is  true.  But  the  trouble  is  that  it 
has  no  particular  application  to  the  subject  in  hand, 


^2  AN   ALPHABET   IN   FINANCE. 

namely:  the  over-issue  of  convertible  notes — the 
forcing  of  paper  into  the  channels  of  trade  in  opposi- 
tion to  the  desire  of  the  people.  No  monetary  sys- 
tem can  prevent  speculative  fevers,  nor  preserve 
bankers  from  infection.  No  monetary  system  can 
supply  bankers  and  capitalists  and  business  men  with 
sagacity,  shrewdness,  coolness,  prudence.  Money  is 
a  tool ;  bank-notes  are  tools.  We  do  not  prevent 
bloodshed  by  prohibiting  the  manufacture  of  knives. 
We  cannot  prevent  foolish  investments  by  suppress- 
ing bank-notes.  Nor,  on  the  other  hand,  do  we 
cause  murder  by  making  cutting  instruments  ;  nor 
produce  speculation  by  issuing  investing  instruments. 
Mark  another  thing :  bank-notes  are  not  the  instru- 
ments by  which  speculations  are  chiefly  carried  on. 
When  a  bank  grants  a  loan  of  $10,000,  it  does  not 
pass  notes  over  the  counter.  It  puts  a  Hne  of  figures 
in  its  books,  and  the  borrower  draws  checks,  whose 
ultimate  settlement  is  effected  by  gold.  A  io.^^  bank- 
notes may  be  drawn,  but  the  proportion  will  be  tri- 
fling. 

^he  bankers  have  no  power  to  inflate  their  con- 
vertible notes.  The  people  have  power  to  draw  out 
more  than  they  can  profitably  employ,  just  as  they 
have  power  to  draw  out  gold  to  fling  it  into  the  sea. 
The  only  bearing  which  the  matter  has  on  the  note 


CONVERTIBLE  NOTES    SELF-REGULATING.       73 

question,  is  that  of  the  security  of  those  notes.  The 
lesson  of  broken  banks  has  been  learned  in  England 
and  in  the  United  States ;  the  Bank  of  England  notes 
and  the  United  States  National  Bank  notes  are  made 
unbreakable  by  a  deposit  of  sufficient  securities  in 
the  hands  of  the  government. 

One  other  phase  of  the  notion  that  banks  have 
autocratic  powers  in  forcing  their  notes  to  circulate, 
is  that  which  manifests  itself  during  times  of  panic 
in  the  cry  for  freer  issues  of  paper.  There  has  been 
a  financial  crash,  trade  has  stopped,  money  therefore 
does  not  circulate,  gold  and  every  kind  of  real  prop- 
erty is  held  by  the  lucky  possessor,  bankers*  and  all 
other  similar  demand  promises  are  presented  for  sub« 
stantial  payment.  As  a  consequence,  money,  gold, 
is  "  scarce."  The  hapless  debtor  cannot  get  it  by 
selUng  goods,  nor  borrow  it  from  the  already  de- 
pleted vaults  of  the  bank.  He  clamors,  therefore, 
for  bank-notes.  Let  the  banks  only  send  out  their 
notes  freely  and  the  trouble  will  be  tided  over.  Will 
it  ?  Suppose  Mr.  A  is  a  hard  pressed  debtor.  The 
bank  makes  him  a  loan  and  gives  it  to  him  in  notes. 
What  does  he  do  with  them  ?  Why  he  pays  them 
to  his  creditors,  B,  C  and  D.  But  B,  C  and  D  have 
no  use  for  notes  ;  they  present  them  for  payment  in 
gold,  or  deposit  them,  and  draw  checks  which  enter 


74  AN   ALPHABET   IN   FINANCE. 

into  the  reckoning  whose  balance  must  be  settled  in 
gold.  The  banks  cannot  keep  their  notes  out,  if 
the  public  does  not  want  them.  If  they  have  not 
available  the  thing  the  notes  stand  for,  they  cannot 
issue  the  notes  without  risk  of  bankruptcy. 


CHAPTER  XIV. 

WHO  SHOULD  ISSUE  PAPER  CURRENCY? 

HIS  seems  a  proper  place  to  meet  the  ques- 
tion, so  often  urged  in  these  times,  Who 
should  issue  paper  currency — the  govern- 
ment or  private  banks  ?  The  basis  for  the 
question  is  the  consideration,  that  the  profit  earned 
by  paper  currency  is  in  reality  the  interest  on  prop- 
erty owned  by  the  holders  of  the  notes — that  is  by 
the  people.  This  fact  should  be  clearly  seen.  Sup- 
pose that  John  Smith,  without  owning  a  cent's 
worth  of  property,  writes  or  prints  notes  by  which  he 
promises  to  pay  to  the  amount  of  $100,000.  And 
suppose  that  his  fellow-townsmen  have  confidence 
enough  in  him  to  sell  him  $100,000  in  gold  and  accept 
his  notes  for  the  coin.  Now  it  is  clear  that  if  John 
Smith  honestly  keeps  that  coin  locked  up  in  his 
chest,  he  can  redeem  his  notes  as  fast  as  they  may 
be  presented.  His  note  circulation  is  perfectly 
sound.  And  again  we  see  that  he  is  now  in  the 
same  condition  precisely  as  was  the  John  Smith  of 


76  AN  ALPHABET   IN   FINANCE. 

Chapter  XIL  It  is  not  necessary  for  him  to  keep 
the  entire  amount  of  gold  in  the  chest.  He  may 
lend  $70,cxx)  to  the  Grain  Elevator  Company,  and 
gain  dividends  on  the  shares.  But  whose  property 
buys  the  shares  ?  Why  the  people's.  John  Smith 
does  not  really  own  it,  yet  he  gains  the  interest  of  it. 
His  fellow-townsmen  have  merely  entrusted  it  to 
his  care,  and  are  willing  that  he  shall  make  what  he 
can  with  it,  so  long  as  he  is  ready  to  give  it  back 
when  they  want  it.  And  this  is  what  a  note  circula- 
tion means  in  every  case.  Every  note  is  a  claim 
upon  the  issuer,  and  to  say  that  the  holder  does  not 
present  the  claim  for  payment  is  only  to  say  that  he 
lends  to  the  issuer  the  property  covered  by  the  note 
So  then,  they  are  right  who  say  that  the  people, 
in  reality,  own  the  capital  against  which  circulating 
notes  are  put  out,  and  upon  which  the  interest  is 
gained.  But  when  they  draw  the  conclusion  that 
the  people  should  therefore  have  the  entire  profit — 
or,  what  is  the  same  thing,  that  the  notes  should  be 
issued  by  the  government,  they  go  too  fast.  The 
man  who  issues  the  notes  and  manages  the  capital 
collected  against  them  is  worthy  of  his  hire.  Sup- 
pose it  were  possible  by  some  device,  to  bring  to- 
gether all  the  httle  waste  patches  of  land  in  a  farm- 
ing community,  the   roadside  bits,  the  corners  of 


WHO    SHOULD    ISSUE    PAPER    CURRENCY?     77 

lots,  and  join  them  in  a  field  for  cultivation  and  pro- 
duction. This  field  would  be  the  property  of  the 
farmers  ;  but  if  John  Smith  stood  ready  to  put  the 
scheme  into  effect  and  make  the  field  productive,  it 
would  be  entirely  equitable  to  let  him  do  it  and 
*'  farm  on  shares."  Nevertheless,  the  farmers  might 
not  be  willing.  They  might  prefer  to  entrust  the 
enterprise  to  the  county  sheriff  or  some  officer  to 
whom  they  would  pay  a  stipulated  salary.  So  let 
us  examine  further. 

The  government  has  a  right  to  issue  the  circula- 
ting notes.  But  the  abstract  right  of  the  govern- 
ment to  do  a  thing  is  not  a  sufficient  reason  for  doing 
it.  Is  it  wise  ?  Is  it  politic  ?  The  only  substantial 
right  here  claimed  for  the  government  is  the  right 
of  making  profit.  But  for  the  sake  of  the  mere  profit 
would  the  government  be  justified  in  undertaking 
the  running  of  railroads,  the  manufacture  of  gas,  the 
management  of  express  lines  and  telegraphs  ?  Evi- 
dently not.  It  is  justified  in  working  the  post-office, 
the  water  supplies,  etc.,  solely  for  the  reason  that  it 
can  perform  these  offices  better  than  private  com- 
panics  could.  Unless,  therefore,  it  can  be  shown 
that  a  government  issue  would  be  better  and  safer  than 
a  private  issue,  we  must  decide  against  adding  this 
business  to  the  already  complicated  duties  of  the  State, 


7S  AN   ALPHABET  IN   FINANCE. 

The  great  reason  why  many  do  not  easily  dis- 
cover a  clear  answer  to  the  inquiry  appears  to  be,  that 
they  do  not  hold  distinctly  in  view  the  character  of 
that  paper  currency  which  is  the  subject  of  the  con- 
troversy. The  question,  "  Who  should  issue  a  non- 
convertible  currency?"  would  be  an  absurdity.  No- 
body can  issue  such  a  currency  except  the  govern- 
ment, and  as  we  shall  see,  it  should  not,  except  under 
pressure  of  the  direst  necessity.  If  the  question  has 
any  significance  at  all,  it  must  refer  to  a  convertible 
currency.  But  the  supreme  requisite  of  convertible 
notes  is  that  they  shall  be  redeemable  in  gold  im- 
mediately on  demand,  and  without  even  a  suspicion 
of  failure. .  The  question  then  becomes,  How  can 
this  convertibility  be  best  secured ;  in  an  issue  by 
the  government  or  an  issue  by  private  banks  ? 

Let  the  government  undertake  the  business.  It 
must,  in  order  to  maintain  the  convertibiHty  of  the 
notes,  keep  on  hand  a  proper  reserve  of  gold,  sup- 
port offices  of  redemption,  and,  in  a  word,  run  the 
machinery  of  note  issue  precisely  as  a  private  banker 
would,  an  exception  of  dubious  import  being  that  the 
capital  against  which  the  issue  is  made  will  probably 
not  be  anything  more  definite  than  the  prospective 
proceeds  of  taxes.  Now  is  it  likely  that  under  such 
a  system,  the  convertibility  of  notes  would  be  made 


WHO   SHOULD  ISSUE  PAPER   CURRENCY?       79 

SO  certain  that  they  would  be  not  only  redeemable 
in  fact,  but  raised  above  suspicion  ?  Assuredly  the 
experience  of  America  does  not  give  us  much  ground 
for  confidence.  At  the  very  threshold  of  inquiry  we 
are  met  by  the  fact,  that  the  government  cannot  be 
compelled  to  pay  its  debts.  The  "  resources  of  the 
country  "  cannot  be  levied  on  if  the  treasurer  says 
he  has  no  means  of  meeting  the  notes.  Whether  the 
necessary  gold  reserve  would  be  kept  would  depend 
upon  an  officer  of  the  government,  only  accountable 
as  such  officer.  Moreover  he  would  be  a  person  ap- 
pointed under  political  influences,  and  would  be  sub- 
ject to  "  rotation  "  out  of  office  about  the  time  that 
he  began  to  understand  his  business — if  he  cared  or 
was  able  to  understand  it  at  all.  And  he  would  be 
hedged  about  by  the  law-making  powers  of  Congress, 
which  could,  if  it  so  wished — either  from  visionary 
notions  or  to  further  some  poHtical  scheme — so  tie 
up  his  resources  that  he  could  not  pay  the  notes  if 
he  desired.  In  a  word,  **  politics  **  would  accomplish 
here,  as  it  has  in  other  similar  fields,  its  miserable 
work  of  corruption.  And  not  even  an  honest  admin- 
istration would  be  a  safeguard,  since  honesty  is  not 
an  assurance  against  the  dreams  and  delusions  of 
'*  statesmen." 

These  considerations,  and  considerations   which 


8o  AN   ALPHABET   IN   FINANCE. 

go  with  these,  would  seem  to  be  decisive.  Never- 
theless, the  government  has  a  duty  in  the  premises. 
Entrusting  the  issue  to  private  banks,  it  must  exer- 
cise its  prerogative  so  far  as  to  make  certain  that  the 
faith  of  the  people  shall  not  be  betrayed.  Bank- 
notes are  so  impersonal  in  character,  circulating  from 
hand  to  hand  without  the  chance  of  such  verifica- 
tion as  is  practicable  in  a  check,  or  any  ordinary 
promissory  note,  that  the  public  have  a  right  to  over- 
sight through  the  government  for  their  protection. 
The  right  is  the  same  as  that  involved  in  the  State 
inspection  of  steamboat  boilers,  or  savings  banks,  or 
insurance  companies.  And  furthermore,  the  peo- 
ple's real  ownership  of  the  note  capital  gives  them  a 
right  to  a  portion  of  the  profit,  to  be  received  by  the 
government.  Our  National  Bank  system  of  issue^ 
like  that  of  the  Bank  of  England— includes  these 
provisionis.  A  tax  is  levied  on  the  circulation,  and 
the  notes  are  required  to  be  secured  by  government 
bonds,  these  bonds  being  lodged  in  government 
keeping. 

Yet,  here  again,  misapprehension  often  arises. 
"  You  object,"  it  is  said,  **  to  basing  a  paper  currency 
on  the  credit  of  the  government ;  and  now  you 
declare  that  to  put  a  currency  on  such  a  basis  is  a 
good  plan."      But  observe   that   the   principle   for 


WHO  SHOULD  ISSUE  FA  PER   CURRENCY?       8 1 

which  we  contend  is  the  right  of  governmental 
supervision  of  the  securities  of  the  note.  The  first 
requisite  of  the  notes  is  convertibility — a  requisite 
which  would  not  be  fulfilled  under  the  ordinary 
working  of  a  government  office,  conducted  by  the 
average  office-holder,  and  ruled  by  the  average  legis- 
lator. But  the  privilege  of  issue  being  given  to  a 
private  bank,  the  question  arises,  In  what  form 
may  the  capital  for  issue  be  best  put  ?  The  private 
bank  cannot  be  trusted  to  answer  that  question, 
for  reasons  which  the  days  of  "  red-dog,"  and  **  wild- 
cat "  notes,  **  Peterson's  Bank  Note  Detector  "  and 
strings  of  exploding  banks  made  very  evident.  Th:; 
government  therefore  selects  the  form  of  investment 
— and  the  governinent  bond  is  here  found  safer,  o" 
more  easy  to  examine  into,  than  mortgages,  grain  ele 
vator  shares,  or  mining  stock.  The  office-holder,  th* 
poHtician  and  the  legislator  have,  certainly,  danger 
ous  powers  over  the  values  of  government  securities, 
nevertheless  they  are  practically  found  in  this  coun 
try  to  maintain  themselves  well.  The  case  would 
be  different  with  a  South  American  republic.  Our 
resources  give  abundant  margin  for  waste  and  thiev- 
ery, without  touching  the  government  obligations. 

Whatever  else  may  be  objected  to  in  the  National 
Bank  scheme,  the  system  of  note  issue  is  essentially 


82  AN  ALPHABET   IN   FINANCE. 

the  true  system.  The  government  yields  its  privi^ 
lege,  but  takes  a  share  in  the  profits — at  present,  one 
half  of  one  per  cent  each  half  year  on  the  average  of 
circulation.  The  notes  are  printed  by  the  govern- 
ment, thus  securing  an  excellence  of  workmanship 
and  a  uniformity  which  are  most  effective  guards 
against  counterfeiting.  The  bank  desiring  to  issue 
must  present  government  bonds,  when  notes  to  the 
amount  of  ninety  per  cent  of  the  bonds  will  be  en- 
trusted to  it.  Thus  the  circulation  is  positively  kept 
within  the  limits  of  the  securities,  and  the  breaking 
of  the  bank  does  not  affect  its  circulating  notes  by  a 
jot.  They  are  redeemed  by  the  government  from  the 
proceeds  of  the  sale  of  the  bonds,  and  the  knowledge 
that  they  will  certainly  be  thus  redeemed  keeps  them 
always  convertible  in  the  market.  When  the  coun- 
try returns  to  specie  payment,  their  merits  will  be 
more  conspicuous  than  now. 


CHAPTER  XV. 

INCONVERTIBLE  NOTES— LEGAL    TENDER, 

T  will  now  be  in  order  to  consider  directly 
the  main  feature  of  the  paper-money  theory. 
Holding  fast  to  the  principles  already  es- 
tablished, we  shall  find  no  difficulty  in 
steering  a  straight  course  through  the  chaos  in  which 
the  subject  is  involved. 

The  characteristics  of  inconvertible  notes  in  their 
usual  form  are  readily  marked.  They  are  notes 
issued  by  the  government,  or  having  in  some  sub- 
stantial fashion  the  government  authority  at  their 
back.  They  come  into  existence  sometimes  through 
fraud  but  commonly  under  some  tremendous  pressure. 
In  the  case  of  the  United  States,  they  originated  in 
the  dire  necessity  of  a  gigantic  civil  war.  The  need  of 
means  in  that  tremendous  exigency  was  so  sudden 
and  so  great  that,  the  small  treasury  reserve  being 
swept  away  like  a  handful  of  dust,  there  was  no 
time  to  impose  and  collect  new  taxes,--08i?.e.yen  to  ne- 
gotiate  a   loan,  to   meet   t^l_' ipaniediate  %^iraands. 


84  AN   ALPHABET   IN   FINANCE. 

The  national  banking  system  gave  some  relief  by 
creating  a  market  for  government  bonds,  but  that 
was  not  established  until  1864.  The  necessity  was 
imperative,  and  the  usual  resort  was  had.  A  loan 
was  *'  forced "  (  we  use  the  word  in  no  invidious 
sense,  but  merely  as  a  technical  term,)  by  an  issue  of 
inconvertible  notes.  It  will,  serve  convenience  to 
study  especially  these  United  States  notes  as  types 
of  their  kind. 

They  make  acknowledgment  of  debt  in  their 
promise  to  pay,  but  they  name  no  day  for  settle- 
ment. Now,  in  the  eye  of  the  law,  notes  of  this 
character  are  demand  notes,  in  the  nature  of  due 
bills.  Had  the  greenbacks  been  issued  by  an  indi- 
vidual, the  holders  would  have  been  free  to  collect, 
by  the  usual  processes  of  law,  the  money  acknowl- 
edged to  be  due,  with  interest  reckoned  from  the 
date  of  issue  at  the  lawful  rate.  But  they  were 
issued  by  the  government,  and  the  usual  processes 
of  law  are  not  available.  The  government  cannot 
be  sued.  Hence,  the  ground  of  the  value  of  the 
greenback  is  simply  the  trust  that  the  government 
will  voluntarily  fulfil  its  promises.  And  when  the 
greenback  was  first  issued,  the  government  virtually 
declared  its  intention  of  being  ruled  as  far  as  possi- 
ble by  the  common  practice.     Believing  that  it  could 


INCONVERTIBLE  NOTES— LEGAL    TENDER.      85 

not  pay  its  demand  notes  at  once,  it  issued  them 
with  a  general  understanding  that  their  redemption 
would  not  be  expected  until  after  the  close  of  the 
war,  and  meantime,  although  it  did  not  directly  allow  . 
interest,  it  partly  made  amends  for  the  omission  by 
offering  to  exchange  the  notes  at  par  for  interest- 
bearing  bonds.  This  seems  to  be  the  truest  view  to 
be  taken  of  the  nature  of  the  greenback ;  yet  it  may 
do  no  practical  harm  to  receive  the  more  commonly 
accepted  theory,  which  is,  that  the  government,  find- 
ing itself  unable  to  borrow  fast  enough  on  its  inter- 
est-bearing bonds,  forced  its  notes  out  and  then 
offered  to  fund  them  into  an  ordinary  bonded  loan. 
This  privilege  of  funding  was  afterward  taken  away 
(a  bit  of  legislation  which  flung  wide  the  door  of 
inflation)  but  its  existence  in  the  beginning  marked 
indubitably  the  original  character  of  the  government 
note  issue.  However  we  may  look  at  it,  the  green-  \ 
back  is  an  acknowledgment  of  a  debt,  to  be  settled 
when  the  state  of  the  national  finances  will  permit. 
In  the  midst  of  war,  the  question  of  the  stability  of  \ 
the  government  affected  its  value,  but  since  then 
this  doubt  has  been  ruled  out,  and  the  notes  rest 
simply  on  the  national  honor,  or  on  the  prudential 
wisdom  of  the  government  in  making  its  credit  good. 
But  even  with  every  confidence  in  the  resources 


86  AN  ALPHABET  IN  FINANCE. 

of  the  country,  and  with  this  pledge  of  the  national 
honor  for   the  ultimate  redemption  of  inconvertible 
notes,  it  might  still  be  very  difficult  to  get  such  notes 
into  circulation,  for  reasons   which  He  in  human  na- 
ture.    Mr.  A  may  have  every  confidence  in  the  paper 
himself,  but  he  may  fear  that  B,  who  is  a  foreigner, 
or  C,  who  has  dyspepsia,  will  not  have  such  confi- 
dence.    But  the  paper  is  of  no  value  to  A  unless  he 
pass  it  on  to  B  and  C.     He  is  therefore  unwilling  to 
exchange  his  goods  for  it  unless  his  uncertainty   is 
dispelled.     It  is  to  meet  this  difficulty  that  the   gov- 
ernment resorts  to  its  supreme  power  and   declares 
its  notes  **  legal  tender."    B  and  C  will  have  no  option 
in  the  matter :  If  A  owes  them  money,  he  can  make 
"  legal    tender"    with     government     notes.      And 
everybody  will  take  these  notes,  because  they  know 
that  everybody  else  will  be  compelled     to    receive 
them  at  their  face  valuation  in  payment  of  debts. 
It  is  somewhat  outside  of  the  scope  of  this  book 
to    discuss   the   question   whether    the    greenbacks 
should  have  been  endowed  with  the  quality  of  "  legal 
tender  "  ;  but  it  is  in  place  to  invite  attention  to  the 
fact  that  the  effect  of  that  quality  is  simply  to  com- 
pel the  ordinary  creditor  to  accept  a  promise  from 
the  government  in  lieu  of  immediate  payment  by 
an  individual.     And  the  consequence  of  this  is,  that 
if  the  government  note  declines  in  value  (as  it  com- 


INCONVERTIBLE  NOTES— LEGAL    TENDER.      87 

monly  does)  the  creditor  is  defrauded  of  the  amount 
of  the  discount,  except  under  one  condition,  namely, 
that  he  has  calculated  that  discount  in  fixing  the 
terms  of  the  debt.  To  be  sure  everybody  does  thus 
calculate  according  to  his  opportunity  and  power ; 
but  the  unfortunate  circumstance  is  ihat  opportunity 
and  power  are  given  very  unequally.  The  army 
contractor  was  able  to  exact  high  prices  of  the  gov- 
ernment for  the  supplies  he  furnished,  but  the  pro- 
ducers of  those  supplies  were  not  in  so  good  a  posi- 
tion to  force  high  prices  from  the  contractor.  The 
effect  of  "  legal  tender  "  was  that  the  government 
put  itself  under  bonds  to  pay  twice  and  thrice  a  fair 
value  for  what  it  bought  during  the  war,  while  the 
enormous  profits  of  these  transactions  were  chiefly 
divided  among  speculators,  and  those  whose  hands 
were  on  the  price  lever.  And  we  shall  see  that  the 
evil  did  not  stop  at  this  bad  distribution  of  the  pay- 
ment for  war  supplies,  but  extended  into  all  trade 
with  the  same  pernicious  result.  The  bare  fact  is, 
that  a  legal  tender  note  will  decline  at  least  as  rapidly 
as  any  other  note,  and  from  like  causes,  which  the 
nature  of  the  note  itself  necessarily  tends  to  aggra- 
iate  ;  and  while  it  is  declining  it  is  an  instrument  by 
vvhich  those  who  can  most  readily  manipulate  prices 
can  despoil  the  general  public  legally,  and  under  the 
guise  of  legitimate  business. 


CHAPTER  XVI. 

INCONVERTIBLE  NOTES  NOT  SELF-REGULATING-^ 
WHY  WE  LOST  OUR  GOLD. 

E  have  seen  that  a  gold  currency  is  self-regu- 
lating in  respect  to  quantity,  because  ex- 
cess is  got  rid  of  by  exportation  and  defi- 
ciency supplied  by  importation  ;  and  that 
a  convertible  note  currency  is  self-regulating,  not  only 
because  it  is  always  supplemented  by  a  gold  mar- 
gin, but  because,  also,  an  excess  is  at  once  cut  down 
by  return  to  the  issuer,  and  a  deficiency  suppHed  by 
the  response  of  the  banks  to  an  opportunity  of  profit. 
But  how  is  it  with  inconvertible  paper  ?  Evidently 
there  is  no  regulating  power  in  it.  The  notes  once 
out  stay  out.  Had  the  right  of  conversion  into  six 
per^nt  bbnds  been  retained  for  the  greenbacks,  any 
excess  of  issue  would  have  returned  to  the  Treasury 
in  exchange  for  those  bonds.  But  that  right  denied, 
all  the  paper  issued  had  to  remain  in  the  channels  of 
trade.  Now,  upon  a  Httle  reflection  it  will  be  seen 
that    so  long  as  an  inconvertible  issue  keeps  well 


WHY    WE    LOST    OUR    GOLD.  89 

within  the  need  (provided  always  that  the  expectation 
of  ultimate  payment  be  unshaken)  the  notes  will  re- 
main at  par.  They  occupy  practically  the  position 
of  that  amount  of  floating  paper  which,  under  specie 
payment,  is  never  presented  for  redemption.  The 
people  want  a  certain  quantity  of  paper  notes  at  all 
times.  If  the  government  issue  does  not  exceed  the 
amount  for  which  the  people  have  good  use,  if  it  does 
not  pass  the  line  beyond  which  should  be  the  gold 
margin,  maintaining  the  standard  measure  of  value, 
and  performing  by  its  flow  and  reflow  the  functions  of 
a  regulator,  then  such  paper  issue  can  be  sustained  on 
an  equality  with  metal.  But  the  moment  that  limit 
is  overstepped  depreciation  inevitably  begins.  There 
is  no  new  or  exceptional  law  in  this  action  of  paper 
depreciation.  If  the  quantity  of  gold  possessed  by 
the  world  were  to  be  increased  beyond  business 
needs,  its  purchasing  power  would  decline;  there 
would  be  a  general  rise  in  "  prices."  But  a  country 
is  the  whole  world  to  a  paper  currency,  because 
paper  is  "  non-exportable."  The  excess  >of  supply 
over  demand  cannot  be  sent  abroad,  nor  returned 
to  the  issuer,  nor  manufactured  like  gold  coin  into 
some  other  commodity ;  it  must  remain  afloat  and 
become  absorbed  by  a  general  rise  of  the  prices  of  all 
things  measured  by  it. 


90  AN   ALPHABET   IN  FINANCE. 

And  what  happens  as  this  process  continues? 
Simply  this : — With  every  fresh  addition  to  the  cur- 
rency, the  whole  volume  loses  in  purchasing  power. 
But  gold  will  not  submit  to  this  loss,  because  it 
can  seek  a  foreign  market  where  the  local  cause  is 
not  present.  Hence  gold  runs  steadily  abroad  ;  it 
becomes  a  superior  currency,  and  paper,  the  inferior 
currency,  drives  it  out.  Or  again,  we  may  look  at 
the  working  of  affairs  from  another  point  of  view. 
Prices  rise  :  what  happens  then  ?  Surely  what  we 
saw  in  our  study  of  the  self-regulation  of  gold  would 
happen.  Imports  increase,  and  exports  are  discour- 
aged. Foreigners  send  in  merchandise  on  t|ie  rising 
market,  and  refuse  to  receive  other  merchandise  at 
the  stiff  valuations.  Hence  the  home  gold  must  go 
out  to  pay  for  the  imports.  To  put  this  in  still  an- 
other way,  the  increase  of  importation  and  discour- 
agement of  exportation,  both  caused  by  high  prices 
in  the  home  country,  make  "  exchange  "  low  abroad 
and  high  at  home.  Hence  foreigners  settle  then 
balances  by  exchange,  while  the  home  merchants 
find  it  more  profitable  to  pay  in  metal.  (See  Chap 
XXHI. — Foreign  Exchange.)  The  analytical  mind 
will  discover  that  we  have  thus  said  the  same  thing 
in  three  different  ways. 

One  point  here  seems  a  difficulty  to  some.     If 


IVIIY    WE    LOST    OUR    GOLD.  QI 

goods  rise  in  value,  they  say,  with  reference  to  paper, 
so  also  does  gold.  Hence  a  merchant  might  as  well 
pay  his  foreign  debts  in  goods  as  in  the  precious 
metal.  Unfortunately  for  this  argument,  gold  never 
rises  in  paper  valuation  so  quickly,  nor  so  much,  as 
goods.  The  general  advance  in  '*  prices,"  due  to  the 
shrinking  of  the  paper  measure  of  value,  does  not 
take  place  in  just  proportion.  Some  things  rise 
more  than  others ;  ratios  of  exchange  are  falsely  dis- 
turbed. That  is  to  say,  some  things  acquire  a 
greater  purchasing  power  than  properly  belongs  to 
them,  while  other  things  have  their  proper  purchas- 
ing power  reduced.  Broadly  speaking,  labor  loses 
most,  and  merchandise  gains  most.  Gold  remains 
nearly  on  the  medium  line,  with  an  inclination  to  the 
losing  side  because  the  demand  for  it  is  lessening. 
It  certainly  advances  to  a  *'  premium  "  in  paper,  but 
it  cannot  advance  in  purchasing  power  as  can  ordi- 
nary goods,  for  the  simple  reason,  illustrated  before, 
of  its  extreme  portability.  The  least  tendency  to 
rise  is  met  by  an  import ;  which  is  not  the  case,  to 
such  a  degree,  with  common  merchandise.  The 
result  is  that  in  real  value,  real  purchasing  power,  the 
inconvertible  paper  stands  lowest,  gold  next,  and 
goods  highest.     The  home  merchant  cannot  pay  his 


92  AN  ALPHABET   IN   FINANCE. 

foreign  debts  in  paper  ;  he  chooses  gold  as  the  next 
cheaper  thing. 

Finally,  we  may  take  this  view.  A  merchant 
does  not  owe  any  debt  abroad  but  wishes  to  buy. 
With  what  will  he  buy  ?  Certainly  with  that  which 
he  can  here  obtain  cheapest,  and  there  exchange 
for  the  most.  And  this  is  gold.  Other  goods  have 
risen  abnormally  here  ;  they  remain  at  the  gold 
prices  abroad. 

Thus  we  find  that  we  reach  the  same  conclusion 
in  all  directions.  But  it  is  only  in  theoretic  analysis 
that  these  various  causes  may  be  separated  ;  in  the 
actual  working,  they  are  found  inextricably  mingled 
together,  acting  and  re-acting,  with  the  one  final 
effect  of  driving  away  the  metallic  currency,  and 
leaving  the  depreciated  paper  in  possession  of  the 
field. 


CHAPTER  XVII. 


I  NFL  A  TION. 


N  a  book  of  such  limits  as  this  it  would  be 
vain  to  attempt  to  portray  adequately  the 
evils  of  an  inconvertible  currency.  But 
the  completeness  of  our  chain  of  logic 
seems  to  require  this  link,  and  it  may  answer  the 
purpose  to  make  some  general  observations,  trusting 
to  the  reader's  own  experience  to  give  them  an 
effective  application.  Our  last  chapter  showed  paper 
declining  in  value  with  every  fresh  issue — and  this 
regardless  of  the  belief  in  the  ability  of  the  govern- 
ment to  redeem  in  the  end.  The  real  ultimate  worth 
of  plows  will  not  prevent  their  fall  in  exchange  value, 
if  there  are  more  made  than  the  farmers  can  use. 

The  paper  "  dollar "  declines  in  purchasing 
power.  Nevertheless,  by  the  legal  tender  act  it 
remains  the  common  measure  of  value.  Let  it  be 
marked  clearly  what  this  means.  A  merchant  pos- 
sesses a  hundred  yards  of  cloth  which  he  sells  on  the 
valuation  of  one  hundred  "  dollars."     He  does  not 


94  AN   ALPHABET   IN   FINANCE. 

receive  the  cash  to-day,  but  two  months  hence. 
Meantime  the  purchasing  power  of  the  "  dollar  "  has 
declined  ten  per  cent.  The  merchant  receives  the 
hundred  "  dollars  "  stipulated,  but  when  he  goes  to 
replace  his  stock  for  further  business,  he  discovers 
that  his  hundred  *'  dollars "  will  buy  only  ninety 
yards  of  cloth.  *'  Prices "  have  gone  up.  He  has 
lost  by  his  trade  the  value  often  yards  of  goods. 

It  must  be  marked  again,  that  the  downward 
movement  is  not  the  only  one  which  ensues.  The 
need  of  the  country  for  money  is  greater  at  one 
time  than  at  another  ;  it  changes  from  day  to  day. 
With  gold  money  these  changes  are  met  by  the 
constant  flow  and  reflow  of  metal  by  natural  trade 
laws.  With  inconvertible  paper  there  is  no  "  gov- 
ernor." An  increased  demand  for  paper  increases  its 
value,  by  diminishing  the  excess  ;  while  a  fall  in  the 
demand  lowers  its  value  by  increasing  the  excess. 
The  measure  of  value  is  constantly  fluctuating. 
And  let  it  be  emphasized  that  these  fluctuations  are 
not  confined,  as  some  curiously  imagine,  to  the 
$800,000,000,  or  so  of  currency,  but  enter  into  every 
business  transaction  where  the  "  dollar  "  is  used  as  a 
measure  of  value, — aflect  the  millions  and  billions  of 
trade-exchange  throughout  the  whole  length  of  the 
land. 


INFLA  TION.  95 

Further,  it  must  be  evident  that  these  changes 
in  the  standard  will  not  touch  all  interests  equally 
This  is  where  the  great  injury  presses,  and  whence 
the  final  strangulation  of  trade  arises.  Those  who 
have  loaned  money,  women  who  have  a  little  store 
in  the  savings'  bank,  widows  who  depend  upon  an 
annual  interest,  possessors  of  mortgages — all  these 
classes  must  suffer  to  the  full  amount  of  the  depre- 
ciation. They  simply  hold  claims  for  **  dollars," 
and  have  no  means  of  making  good  the  loss  of  pur- 
chasing power.  The  laborer,  the  man  in  any  voca- 
tion of  wage  or  salary,  must  bear  a  heavy  propor- 
tion of  the  loss.  He  is  not  in  position  to  exact  an 
extra  number  of  *'  dollars  "  to  compensate  for  the 
depreciation.  But  the  manufacturer  and  the  mer- 
chant, when  they  perceive  whence  their  losses  come, 
begin  to  protect  themselves  by  raising  the  "prices" 
of  their  wares.  And  they  raise  them  to  a  degree 
which  not  only  keeps  pace  with  the  fall  of  paper,  but 
which  outstrips  it,  and  leaves  a  margin  for  insurance 
against  risk.  Farmers  suffer  much,  because  wheat 
is  really  valued  in  the  foreign  ports  whither  much  of 
ft  is  exported  ;  that  is,  it  is  put  on  par  with  gold — 
which  as  we  have  seen,  must  remain  cheaper  than 
general  goods.  At  the  one  end  of  the  trade  Hne, 
the  merchant  receives  high  prices  for  what  he  sells. 


9^  AN   ALPHABET   IN   FINANCE, 

and  pays  low  prices  for  what  he  buys ;  at  the  other 
end  the  farmer — the  laborer — the  man  of  wages — the 
man  of  salary — receives  low  prices  and  pays  high 
prices.  The  conclusion  is  inevitable  :  the  founda- 
tion producing  classes  are  ground  to  powder,  and 
the  producers  and  exchangers  higher  up  in  the  indus- 
trial structure  come  tumbHng  headlong.  The  cur- 
rent phrase  is  pregnant  with  truth :  "  The  bottom 
has  fallen  out  of  everything." 

"  But,"  it  is  objected,  "  these  times  when  this  ruin- 
ous process  is  supposed  to  have  been  going  on  were 
times  of  piping  prosperity."  Nothing  could  be  more 
fallacious  than  this  common  saying.  During  these 
years  of  violent  changes  of  the  standard  of  value, 
many  found  themselves  suddenly  endowed  with 
wealth  for  which  they  had  given  no  adequate  return. 
The  treacherous  measure  had  taken  from  others  and 
given  to  these.  Yet  those  who  had  lost  were  not 
aware  of  it.  Had  they  not  so  many  "  dollars  ?  "  or 
goods  whose  "  price  "  was  so  many  "  dollars?"  And 
thus  a  merchant  turned  his  capital  over  and  over, 
getting  less  and  less  in  real  value,  yet  more  and  more 
in  "price"  and  number  of  "dollars,"  until  the  crash 
came.  Then  prices  "settled,"  and  the  merchant 
found  he  had  not  enough  value  to  meet  his  obliga- 
tions.    Had  this  been  all — enough  surely  ! — in  the 


IN  FLA  TION.  97 

period  of  "prosperity,"  a  few  cunning  or  lucky 
ones  would  now  be  richer,  and  the  many  foolish  or 
unlucky  ones  poorer.     But  this  was  not  all. 

The  period  of  "  prosperity  "  was  really  opened  by 
the  war.  The  destruction  of  the  gigantic  civil  strife 
created  a  demand  for  enormous  quantities  of  all  kinds 
of  manufactures,  produce  and  merchandise.  Those 
whose  business  it  was  to  furnish  these  supplies  reaped 
great  profits,  and  such  of  them  as  were  shrewd 
enough  to  cut  off  their  operations  before  the  demand 
stopped,  kept  fast  hold  upon  their  riches.  But  very 
few  were  thus  wise.  The  war  induced  many  to  build 
great  factories,  whose  manufactures  could  not  find 
sale  in  times  of  peace, — to  cultivate  lands  at  such 
cost,  that  the  failure  of  the  excessive  consumption  of 
the  war  inevitably  brought  loss.  While  the  destruc- 
tion of  wealth  continued,  things  were  **  lively,''  all 
staples  and  all  war  supplies  were  in  great  demand, 
and  the  handling  of  these  kept  the  "  wheels  of  trade  " 
running,  for  nobody  was  really  paying  for  the  things 
destroyed ;  they  were  bought  by  the  government 
with  its  bonds.  They  were  to  be  paid  for  by  future 
generations.  And  then  came  another  cause  of  "  pros- 
perity." The  gold  of  the  country  was  exported  and 
goods  received  in  return.  These  goods  passed  into  the 
general  material  for  consumption,  while  the  loss  of 


98  AN   ALPHABET   IN  FINANCE, 

the  gold  was  not  felt  at  the  time,  because  of  the  sup- 
ply of  paper  currency.  In  a  word,  this  period  of 
"  prosperity  "  was  a  period  of  extravagant  consump- 
tion. A  man  who  has  a  fortune  of  $100,000  may  be 
very  "  rich  "  for  a  little  while  by  consuming  $50,000 
a  year.  But  when  his  capital  is  all  gone,  poverty 
strikes  him. 

And  yet  again,  the  presence  of  a  fluctuating  and 
depreciated  currency,  in  connection  with  these  other 
causes,  brought  on  the  era  of  speculation.  The  con- 
tinual variation  of  the  standard  made  all  business 
compulsory  gambling,  to  the  end  of  driving  conserva- 
tives out  of  trade,  and  of  awaking  the  love  of  gam- 
bHng  latent  in  the  breast  of  most  Americans.  The 
gambling  spirit  became  rife  through  the  States ;  peo- 
ple became  impatient  of  the  slow  and  sure  road  to 
competence,  and  feverishly  sought  means  of  acquiring 
wealth  at  a  stroke.  As  illustrative  of  the  many  un- 
happy results  we  may  consider  the  railroad  mania. 
And  just  here  let  us  step  carefully. 

Wild-cat  roads  may  be  built  under  a  perfectly 
sound  currency.  Capitalists  may  rush  into  all  kinds 
of  mad  speculation  although  the  currency  is  the  best 
ever  devised.  As  we  have  pointed  out  before,  the 
mere  tool  of  trade  cannot  become  a  directing  power, 
and  actually  control  the  working  of  men's  minds. 


IN  FLA  TION.  99 

The  mischief  is  done  by  inconvertible  paper,  or  rather 
by  the  lowering  of  the  measure  of  value  by  inconvert- 
ible paper,  through  subtle  temptations.  An  excess  of 
*'  money  "  produces  an  impression  of  excess  of  wealth. 
High  prices  lead  to  a  delusion  of  great  prosperity. 
Over  accumulation  of  notes  in  banks,  and  the  nomi- 
nal swelling  of  bank  accounts,  presents  a  temptation 
to  lavish  loaning — a  temptation  which  soon  may  be- 
come irresistible  by  the  confident  clamors  from  one 
side  for  means  to  put  into  magnificent  new  enter- 
prises, and  a  careless  readiness  on  the  other  in  com- 
mitting those  means  to  the  banker's  hands.  The 
gambling  spirit,  the  spirit  of  high  speculation,  and  the 
delusion  of  wealth  work  together  to  entice  and  draw 
and  push  the  country  to  destruction.  The  railroads 
are  begun,  the  great  schemes  of  all  kinds  under- 
taken. Millions  of  capital  are  either  flung  away  or 
are  planted  where  no  return  can  be  had  for  many 
years.  While  the  delusion  lasts  and  while  the  cap- 
ital holds  out,  there  is  a  time  of  great  "  prosperity." 
Work  is  plenty,  *'  money  "  circulates  freely,  iron  furna- 
ces are  in  full  blast,  perhaps  new  furnaces  are  built, 
farmers  get  good  prices  for  their  produce,  stuffs  for 
clothing  are  in  great  demand,  new  dwellings  are 
erected,  real  estate  rises — everything  is  at  the  height 
of  activity,  and  everybody  is  getting  **  rich  "  by  jumps. 


ICX)  AN   ALPHABET   I  AT   FINANCE. 

And  since  everybody  is  getting  rich,  everybody  is 
justified  in  pouring  money  around  like  water.  And 
this  again  makes  more  work,  more  consumption  of 
products,  more  *'  prosperity."  Finally  the  crash 
comes.  The  capital  put  into  the  railroad  is  exhausted 
ind  there  are  no  dividends.  It  is  found  that  there 
:annot  be  any  dividends  for  years.  But  the  loan- 
ers  of  the  capital  want  it  back.  They  demand  it 
of  the  bank  and  the  bank  demands  it  of  the  railroad 
men.  The  railroad  men  point  to  their  unfinished 
road,  but  are  not  able  to  sell  the  stock  for  means  to 
pay  the  bank.  The  bank  cannot  pay  its  depositors, 
and  breaks.  And  the  breaking  of  the  bank  breaks  a 
merchant,  and  down  go  a  dozen  houses  like  a  row 
of  bricks.  Then  the  country  comes  out  of  the  fog, 
and  makes  the  wretched  discovery  that  it  has  been 
living  at  a  high  rate,  not  on  its  surplus  of  resources, 
but  on  the  capital  needed  to  carry  on  its  producing 
labors. — It  had  a  fortune  of  $100,000.  It  has  been 
"  rich  "  for  two  years  by  spending  $50,000  annually. 
Business  comes  to  a  standstill.  Theorists  of  a  cer- 
tain kind  call  for  "  more  money"  to  start  the  wheels 
of  trade.  Other  theorists  are  aggrieved  at  the  loss 
of  "  confidence."  Others  advise  that  everybody 
fall  to  spending  freely  and  cease  their  **  cant  of 
economy." 


INFLATION.  101 

But  those  who  have  suffered  directly  keep  their 
capital,  if  they  have  any  left,  shut  up  as  safely  as 
possible,  awaiting  a  solid  renewal  of  genuine  business, 
with  a  currency  which  can  be  relied  upon  to  give  a 
true  adjustment  oi  vaiues 


CHAPTER  XVIII. 

PURE    "CREDIT  MONEVr 

E  have  thus  far  dealt  with  inconvertible 
notes  simply  as  temporizing  expedients, 
issued  in  time  of  distress  to  make  a  forced 
loan.  And  we  have  had  to  do  with  the  pa- 
per-money notion  in  its  partial  manifestations  only. 
But  this  notion  has  a  complete  development ;  not, 
happily,  in  the  experience  of  this  country,  but  in  the 
minds  of  visionaries,  who  are  striving  with  unmistak- 
able zeal  to  put  their  extraordinary  theories  into  act- 
ual practice.  In  spite  of  the  bitter  teachings  of  the 
last  ten  years,  in  contempt  of  the  plain  lessons  of  his- 
tory, in  the  face  of  simple  logic  and  common  sense,  a 
school  of  wise-acres  has  arisen  who  declare  not  mere- 
ly that  an  inconvertible  paper  is  harmless,  but  that 
it  can  be  permanently  maintained  as  an  instrument 
of  boundless  prosperity.  In  its  simplest  form  the 
theory  starts  with  the  proposition  that  money  is  "  the 
creation  of  the  government,"  and  hence  evolves  the 
bald  dogma,  that  the  government  can  make  a  **  dol- 


PURE    CREDIT   MONEY.  I03 

lar  "  out  of  a  bit  of  tin,  or  a  bit  of  iron,  or  a  bit  of 
paper,  just  as  it  can  out  of  a  bit  of  gold — simply  by 
putting  upon  it  the  stamp  of  its  supreme  authority. 
We  have  already  considered  this  delusion.  By  call- 
ing a  piece  of  gold  a  "  dollar  "  the  government  con- 
fers upon  it  no  value  whatever.  The  piece  of  money 
has  purchasing  power  because  of  the  valuable  metal 
of  which  it  is  made.  If  the  government  declared  that 
half  the  quantity  of  gold  should  be  a  "  dollar,"  then 
the  '*  dollar  "  would  simply  have  half  its  present  pur- 
chasing power.  If  a  quantity  of  tin,  worth,  let  us 
say,  a  quart  of  potatoes,  were  constituted  a  *'  dollar," 
then  potatoes  would  be  worth  a  "  dollar "  a  quart. 
We  should  have  a  different  scale  of  ''  prices."  Gov- 
ernment does  not  create  the  value  of  money  ;  it  sim- 
ply declares,  or  defines,  the  unit  of  value-measure- 
ment, in  precisely  the  same  way  that  it  declares  the 
standard  "  yard  "  and  the  standard  **  pound."  If, 
therefore,  it  made  a  bit  of  paper  a  "  dollar,"  the 
"  dollar  "  would  be  worth  precisely  what  a  bit  of  pa- 
per is  worth  as  paper  stock. 

But  certain  of  the  paper  philosophers  have  put 
the  notion  in  a  subtler  form.  This  is  their  argu- 
ment :  In  the  beginning  was  barter  ;  then  came  gold 
as  a  medium;  and  then  came  "credit."  The  high- 
er  the  civiHzation,  the  less  the  proportion  of  coin 


104  AN   ALPHABET   IN   FINANCE. 

used  and  the  greater  the  proportion  of  "  credit ''  pa- 
per. Hence,  in  a  supremely  civilized  State,  coin  will 
disappear  altogether,  and  paper  be  the  sole  currency. 
This  is  the  sober  reasoning  of  Mr.  Peter  Cooper  in 
his  printed  pamphlet  on  the  subject.  It  forcibly  re- 
minds one  of  the  sage  who  discovered  that  by  using 
a  stove  instead  of  an  open  fire-place  he  saved  half  his 
coal,  and  straightway  determined  to  use  two  stoves 
and  save  the  whole  of  it.  Or  it  is  as  if  one  should 
say  to  his  grocer,  "  My  friend,  when  I  moved  into 
this  neighborhood,  I  had  to  pay  you  cash  down  for 
every  pound  of  butter  and  peck  of  potatoes  I 
bought  of  you.  But  you  soon  came  to  know  me  and 
were  willing  occasionally  to  give  me  '  tick.'  At  the 
present  stage  of  our  intercourse,  you  have  acquired 
entire  confidence  in  my  honesty  and  the  extent  of  my 
resources,  and  are  willing  to  sell  me  all  I  want  on  credit. 
Suppose  now,  in  the  interests  of  a  higher  civihzation. 
we  carry  out  this  process  of  evolution  and  abolish  the 
bothersome  system  of  periodical  settlements.  Let 
us  make  the  thing  credit  all  the  way  through !  " 

The  process  of  development  which  these  reason- 
ers  ingeniously  trace  has  never  even  begun.  As  we 
have  pointed  out  before,  "  credit "  is  no  substance  in 
itself,  to  be  cut  off  by  the  yard,  or  handed  round  in 
chunks.     You  cannot  pay  a  debt  by  presenting  to 


PURE    CREDIT   MONEY.  10$ 

the  man  you  owe  a  pound  of  **  credit,"  or  a  square 
inch  of  "  credit,"  or  a  quart  of  "■  credit."  You  may 
defer  payment  by  giving  **  credit "  on  your  books, 
leaving  him  to  collect  the  debt  at  some  future  day 
either  in  money  or  goods ;  or  you  may  defer  it  by 
giving  a  promissory  note ;  or  again,  you  may  transfer 
the  obligation  of  payment  to  a  bank  by  giving  a 
bank-note  or  a  check,  or  to  some  other  person  by 
means  of  a  bill  of  exchange  or  other  **  credit  "  paper. 
Now,  the  book  accounts,  and  the  checks,  bills  of 
exchange,  etc.,  are  far  more  largely  balanced  by 
counter  accounts,  checks  and  bills  than  settled  by  a 
payment  of  money.  It  may  at  first  sight  appear, 
therefore,  that  in  the  bulk  of  trade  transactions 
money  is  dispensed  with.  But  is  it  ?  Not  at  all. 
When  a  merchant  draws  his  check  in  return  for  a 
dozen  pieces  of  cloth,  does  he  write,  **  The  People's 
Bank  will  pay  to  the  order  of  Philanthropic  Phitz- 
noodle  a  dozen  pieces  of  cloth,  or  the  equivalent 
thereof  in  green  cheese  or  other  articles  which  the 
said  Phitznoodle  may  elect?  "  No.  He  writes  sim- 
ply, ''  The  People's  Bank  will  pay  to  the  order  of 
Philanthropic  Phitznoodle  five  hundred  dollars."  In 
other  terms,  the  standard  dollar  is  present  in  this 
transaction,  performing  its  indispensable  office  of  a 
measure  of  value.     The  check  only  discharges  the 


I06  AN   ALPHABET  IN   FINANCE. 

function  of  a  medium  of  exchange,  and  does  not 
even  do  that  in  itself,  but  only  through  the  value  of 
the  property  controlled  by  the  bank,  it — the  check 
— being  a  claim  for  a  specific  portion  of  that  property. 
The  trade,  thus  far,  is  the  barter  of  a  dozen  pieces 
of  silk,  worth  five  hundred  dollars,  for  an  amount  of 
the  bank's  resources  worth  five  hundred  dollars. 
The  check  has  not  bought  anything,  any  more  than 
the  title  deed  to  an  acre  of  land  buys  in  a  trade. 
The  acre  of  land  itself  exerts  the  purchasing  power ; 
the  title  deed  is  only  the  legal  evidence  of  owner- 
ship. The  specific  portion  of  the  bank's  resources 
buys  the  cloth ;  the  check  only  carries  the  title. 
Take  away  the  acre  of  land,  and  the  title-deed  is 
worthless ;  take  away  the  banking  property,  and  the 
check  has  no  more  value  than  a  piece  of  waste  paper. 
To  sum  up  as  to  this  phase  of  the  paper  money 
delusion:  In  the  various  forms  of  "  credit "  paper, 
there  is  no  abandonment  either  of  a  basis  of  real 
value  or  of  the  monetary  standard  and  unit  of  value. 
There  must  be  a  substantial  valuable  thing  behind 
every  check,  note,  bill  and  book-account  used  in 
effecting  exchanges,  and  a  unit  of  value-measure- 
ment must  be  furnished  (of  course  by  something 
possessing  value  to  make  measurement  possible),  in 
order  that  the  commodities  exchanged  can  be 
measured  one  against  the  other. 


CHAPTER  XIX. 

THE  "  CLOSED  CIRCLE." 

HE  pure  '^  credit  money"  notion  seems  to 
take  a  subtler  form  still  in  the  variation 
known  as  the  "  closed  circle  " — a  variation 
sufficiently  ingenious  to  capture  so  acute 
a  thinker  as  the  Rev.  Thomas  K.  Beecher,  as  well  as 
others  of  unquestioned  ability  in  matters  where  they 
deign  to  study  facts  before  evolving  principles.  This 
is  the  theory :  A  buys  a  hundred  dollars*  worth  of 
goods  from  B  ;  B  buys  a  hundred  dollars'  worth  of 
goods  from  C  ;  and  C  "  closes  the  circle  "  by  buying 
a  hundred  dollars'  worth  of  goods  from  A.  Now  the 
entire  indebtedness  of  the  three  can  be  discharged 
by  circulating  a  hundred  dollars  from  any  point  all 
around  the  circle.  But  if  A  starts  the  cash  going,  he 
simply  hands  it  with  his  right  hand  to  B  and  receives 
it  back  again  with  his  left  hand  from  C.  Therefore, 
the  work  might  have  been  done  as  well  with  a  button 
or  a  bit  of  leather,  or,  better  still,  by  a  scrap  of  paper 
with  "  One    Hundred    Dollars "   inscribed   thereon. 


I08  AN  ALPHABET   IN   FINANCE, 

Now,  say  the  theorists,  let  us  extend  this  circle  to 
embrace  the  whole  country.  Let  the  government 
issue  these  notes  for  its  debts,  let  them  pass  from 
hand  to  hand  in  the  work  of  exchanging  goods,  and 
let  the  circle  be  closed  by  their  return  to  the  govern- 
ment again  for  taxes  and  custom  duties. 

This,  to  some,  looks  very  fine ;  but  suppose  we 
examine  it.  "  A  buys  a  hundred  dollars'  worth  of 
goods  from  B."  Why  a  hundred  dollars*  worth? 
How  a  hundred  dollars'  worth  ?  Of  course  this 
means  that  A  buys  goods  which  are  equal  in  value  to 
a  hundred  of  those  bits  of  gold  we  call  "  dollars," — 
or,  in  these  days  of  suspended  payment,  equal  in 
value  to  paper  notes  for  which  a  hundred  dollars' 
worth  of  gold  is  sometime  expected,  but  which  are 
at  a  discount  from  various  causes.  So  again  we 
strike  gold  performing  its  great  office  of  a  measure 
of  value.  This  measurement  of  value  cannot  be 
made  with  a  button,  nor  a  bit  of  leather,  nor  a  scrap 
of  paper,  having  no  value  in  itself  and  no  definite 
value  as  a  claim  to  anything  else.  "  How  can  you 
say,"  exclaims  the  paper-money  man,  "that  these 
proposed  notes  have  no  definite  value !  The  govern- 
ment puts  its  stamp  upon  a  piece  of  paper  for  '  One 
Dollar.*  There  you  have  your  measure  of  value.  A 
hundred  dollars'  worth  of  goods  woHid  be  measured 


THE    CLOSED    CIRCLE.  IO9 

in  value  by  a  hundred  of  these  dollar  notes.  This 
elucidation  is  actually  made.  But  if  the  government 
puts  its  stamp  upon  a  bit  of  paper — **  One  Pound,'* 
will  the  paper  measure  the  weight  of  a  quantity  of 
sugar  ?  Or  if  it  stamps  a  bit  of  leather  "  One  Quart," 
can  you  find  out  with  that  how  much  water  there  is 
in  the  cistern  ?  To  measure  weight  you  must  have 
weight — not  something  which  "  represents  "  weight, 
or  is  "  based  "  on  weight,  or  is  "  good  for  "  weight, 
or  is  redeemable  even  in  weight.  To  measure  length 
you  must  have  length  ;  to  measure  volume  you  must 
have  volume  ;  to  measure  value  you  must  have  value. 
With  redeemable  notes  you  do  not  measure  value 
with  the  notes,  but  with  the  gold  in  which  the  notes 
are  payable.  And  not  only  mMst  you  have  actual 
weight,  length,  volume  and  value  to  make  the  vari- 
ous measurements,  but  you  must  have,  evidently, 
definite  amounts  of  each  of  these  as  units  of  measure- 
ment in  the  respective  classes.  So,  we  have  the 
standard  pound,  the  standard  yard,  the  standard 
gallon — all  determined  with  the  utmost  degree  of 
scientific  accuracy,  and  fixed  by  law  ;  and  so,  also,  we 
have  and  must  have,  the  standard  "  dollar,"  a  cer- 
tain quantity  of  gold  of  a  certain  fineness ;  namely, 
25.8  grains  of  the  metal,  ^  fine.  And  the  value  of 
the  labor  of  digging  this  amount  of  gold  and  fashion- 


no  AN   ALPHABET   IN   FINANCE. 

ing  it  into  a  coin  is  the  value  we  choose  to  call  a 
"  dollar." 

*'  But,"  once  more  says  the  paper  theorist,  "  the 
paper  dollar  is  to  be  given  value  by  being  made  re- 
deemable in  taxes  and  customs,  and  the  value  will  be 
definite  and  fixed  because  the  dollar  note  will  be  re- 
ceived for  exactly  a  dollar's  worth  of  taxes  or 
duties."  This  statement  is  also  actually  made. 
Now,  what  is  a  "  dollar's  worth  "  of  taxes  ?  Is  it 
the  amount  of  value  due  the  government  on  prop- 
erty worth — but  how  shall  we  determine  what  the 
property  itself  is  worth  ?  The  unit  of  value  is  a  cer- 
tain quantity  of  tax.  And  the  quantity  of  tax  is 
determined  by  the  value  of  property  as  measured  by 
this  quantity  of  tax  taken  as  a  unit !  We  trust  this 
is  clear  so  far.  Furthermore,  the  rate  of  taxation  is 
determined  by  the  expenses  of  government,  and 
therefore  varies  from  year  to  year  :^that  is  to  say,  the 
quantity  of  tax  (which  determines  the  unit  of  value) 
due  to  the  government  on  property  worth  a  certain 
number  of  times  the  unit  (this  number  being  fixed 
by  the  ratio  of  taxation)  must  be  adjusted  from  year 
to  year,  the  unit  of  value  thus  changing  with  it,  and 
also  the  "  value  "  of  the  property,  upon  the  liability 
of  which  to  taxation  the  unit  of  value  is  based.  This 
should  be  very  clear  at  this  stage.    And  finally 


THE    CLOSED    CIRCLE.  Ill 

but  why  pursue  such  extravagant  but  logical  develop- 
ments to  any  further  degree  of  nonsense  ?  We  can 
not  have  a  unit  of  value-measurement  except  by  con- 
stituting a  certain  quantity  of  some  valuable  thing 
such  unit.  The  United  States  has  thus  established 
its  unit — 23.22  grains  of  pure  gold,  or  25.8  grains, 
^»^  fine.  From  the  necessity  of  giving  this  unit  some 
name,  it  was  named  a  "  Dollar."  But  we  cannot 
make  a  bit  of  paper  as  valuable  as  25.8  grains  of 
gold  by  calling  it  also  a  '*  dollar,"  nor  by  giving  it 
power  to  cancel  a  tax  whose  value  can  be  determined 
by  no  mortal  means. 


CHAPTER  XX. 

THE  THREE-SIXTY-FIVE  BOND   SCHEME. 

HE  unquestionably  strong  hold  which  the 
so-called  **  three-sixty-five  bond  scheme  " 
has  gained  in  the  minds  of  many  is  a  suffi- 
cient reason  for  a  thorough  consideration 
of  it.  It  is  usually  stated  as  Peter  Cooper  states  it : 
"  The  exchangeable  value  of  anything  depends  upon 
its  convertibility  into  something  else  that  has  value, 
at  the  option  of  the  individual.  This  rule  applies  to 
paper  money The  currency  must  be  con- 
vertible into  something  over  which  the  government 
has  entire  control,  and  to  which  it  can  give  a  definite 
as  well  as  permanent  value.  This  is  its  own  interest- 
bearing  bonds.  These  are,  in  fact,  a  mortgage  upon 
the  embodied  wealth  of  the  country.  .  .  .  The 
degree  of  their  value  can  be  determined  exactly  by 
the  amount  of  interest  the  government  may  think 
proper  to  fix.  .  .  .  This  convertibility  will  always 
keep  a  check,  both  on  the  amount  of  currency  and 
the   amount  of   bonds,  .  .  .  But    at    no    time  will 


THE    THREE-SIXTY-FIVE  BOND   SCHEME.     II3 

either  the  bonds  or  the  currency  be  a  mere  drug  upon 
the  market,  for  they  will  be  mutually  convertible." 

It  is  sufficiently  easy  to  reveal  the  utter  absurdity 
of  these  propositions  and  the  conclusions  evolved 
from  them.  The  only  one  that  contains  a  grain  of 
truth  is  the  first,  which,  with  a  tautology  ridiculously 
disguised,  lays  down  the  profound  law  that  for  a 
thing  to  have  exchangeable  value,  it  must  be  ex- 
changeable for  a  valuable  thing.  The  rest  contain 
nothing  but  sheer  nonsense-.  The  bonds  are  to  be 
"  a  mortgage  on  the  embodied  wealth  of  the  coun- 
try,''— and  yet  give  no  one  a  claim  to  a  penny's 
worth  of  that  wealth.  If  the  bond-holder  wants 
interest,  he  gets  it  in  bits  of  paper ;  if  he  wants  the 
whole  sum  named  in  the  bond,  he  gets  more  bits  of 
paper.  If  he  still  wants  value  for  these  bits  of  paper, 
he  can  exchange  a  number  of  them  again  for  a 
"  bond."  In  this  merry-go-round  there  is  not  a  pin's 
point  of  real  value,  but  only  the  shadow  of  its  name 
and  the  figures  of  "  dollars."  To  suppose  that  value 
can  be  given  a  piece  of  paper  by  making  it  exchange- 
able for  another  piece,  and  constituting  that  other 
piece  a  title  to  a  certain  number  of  other  pieces 
annually,  is  a  most  curious  delusion. 

But  supposing  these  interconvertible  pieces  of 
paper  to  have  value,  how  would  **  the  degree  of  their 


114  AN  ALPHABET   IN   FINANCE. 

value  **  be  determined  by  the  amount  of  interest  ? 
The  amount  of  interest  could  determine  nothing 
whatever  but  a  certain  proportional  relation  between 
their  values.  Can  Mr.  Cooper  calculate  the  value  of 
a  house  which  yields  a  rental  of  3.65  per  cent  on  its 
market  worth?  How  much  is  it — $500,  $j 0,000, 
nothing  ?  Again  we  strike  that  extraordinary  and 
seemingly  ineradicable  blunder  of  mistaking  a  name 
for  a  thing.  The  problem  is  to  fix  and  regulate  the 
value  of  the  **  dollar."  Mr.  Cooper  does  it  by  giving 
the  holder  of  a  hundred  "  dollars  "  three  and  sixty- 
five  hundredths  "  dollars "  additional  per  annum. 
To  use  a  figure  :  Let  the  name  of  the  unit  of  value  be 
changed,  that  we  may  rid  our  minds  of  the  preposses- 
sions of  the  word  and  study  the  real  thing.  Let  the 
people  of  the  Moon  agree  to  call  their  unit  of  value 
a  "  phantom."  Now  a  hundred  "  phantoms  "  may  be 
converted  into  a  bond,  bearing  an  interest  of  three  and 
sixty-five  hundredths  "  phantoms  "  annually.  Have 
they  fixed  or  regulated  the  value  of  the  "  phantom  ?  " 
What  is  a  "phantom"  worth?  This  discussion, 
when  we  interject  simple  illustrations,  begins  to  look 
puerile,  does  it  not  ?  Yet  we  have  such  conscien- 
tious men  as  Peter  Cooper,  such  "  statesmen  "  as 
Kelley,  Baird,  and  Cary,  and  a  host  of  others  gravely 
propounding  these  ideas  which  we  are  analyzing,  and 


THE   THREE-SIXTY-FIVE  BOND  SCHEME.     II5 

obtaining  a  hearing,  too,  in  very  respectable  quarters. 
The  Germans  have  a  comical  adage  about  the 
absurdity  of  slaying  lice  with  a  club.  Yet  the  pro- 
cess seems  sometimes  necessary.  The  advocates  of 
the  bond  scheme  unconsciously  "  fix  "  their  "  dollar  " 
before  they  apply  their  marvellous  scheme  for  fixing 
it.  They  call  the  bond  a  hundred  **  dollar"  bond, 
and  their  note  a  "  dollar  **  note,  and  now,  say  they, 
it  is  evident  that  this  bond  is  actually  worth  a 
hundred  *'  dollars,"  because  you  can  get  a  hun- 
dred of  these  "dollar"  notes  for  it.  And  it  is 
equally  evident  that  this  note  is  worth  one  "dol- 
lar" because  if  you  take  a  hundred  of  them  you 
can  buy  a  hundred  "  dollar  "  bond.  They  "  fix  "  the 
breadth  of  the  barn  by  telling  the  builder  to  make  it 
three  times  the  breadth  of  the  barn  door,  and  "  regu- 
late "  the  breadth  of  the  barn  door  by  ordering  it 
one-third  the  breadth  of  the  barn. 

Furthermore,  there  is  no  regulating  power  in 
interest  even  if  it  is  paid  in  a  thing  of  fixed  value. 
The  value  of  the  "  dollar  "  is  to  be  fixed  by  the 
value  of  the  bond ;  and  the  value  of  the  bond 
fixed  by  the  value  of  its  interest ;  and  the  value  of 
its  interest  is  the  value  of  three  "  dollars  "  and  sixty^ 
five  "  cents."  Let  us  make  the  absurd  supposition 
(the  actual   supposition  of  the  theorists)   that  the 


Il6  AN   ALPHABET   IN   FINANCE. 

value  of  the  "dollar  "  in  which  the  interest  is  paid  is 
already  fixed.  Will  a  fixed  rate  of  interest,  even  in 
these  fixed  "  dollars,"  fix  the  value  of  the  bond  ? 
Evidently  not,  because  general  interest  is  varying 
continually.  Suppose  that  the  bonds  of  the  Lunar 
Railroad  .pay  a  steady  interest  of  double  3.65.  This 
being  a  good  rate,  these  bonds  would  be  always 
salable — that  is,  would  practically  be  as  convertible 
into  greenbacks  as  the  government  bonds.  And 
hence,  a  hundred-dollar  government  bond  would  be 
worth  in  the  market  only  half  as  much  as  a  hundred- 
dollar  Lunar  Railroad  bond.  As  general  interest 
goes  up  or  down,  the  value  of  securities  with  fixed 
interest  must  go  down  or  up.  This  is  the  case  with 
the  English  "  consol,"  from  which  probably  the  3.65 
idea  was  derived.  With  its  interest  fixed  at  three 
per  cent,  and  backed  by  the  "  embodied  wealth  of 
the  whole  country,"  the  consol  changes  in  price  from 
day  to  day. 

Thus,  the  more  rigidly  we  analyze,  the  more 
utterly,  hopelessly  absurd  the  3.65  bond  scheme 
appears.  Expunging  the  complexities  of  the  theo- 
rists* explanations,  their  dollar  is  the  value  of  a  hun- 
dredth part  of  a  title  to  three  dollars  and  sixty-five 
cents  a  year.  Can  any  one  of  them  make  any  sense 
of  the  definition  ? 


CHAPTER  XXI. 

THE  BOND  SCHEME  A  T  ITS  BEST 

N  our  last  chapter,  we  saw  how  utterly 
absurd  the  three-sixty-five  bond  scheme  is 
as  it  is  presented  by  its  chief  advocates.  It 
ought,  however,  to  be  noticed  that  this 
formal  presentation  is  neither  accurate  nor  true,  and 
is  never  adhered  to  in  the  face  of  debate.  The  louse 
skips  under  the  club,  and  when  you  have  annihilated 
one  of  his  abiding  places,  he  has  secured  another 
which  is  at  least  just  as  good.  Now,  it  is  a  real  mis- 
fortune that  the  precise  nature  of  the  bond  idea  is 
not  generally  understood  either  among  hard-money 
or  soft-money  believers.  The  failure  on  the  one  side 
to  analyze  it,  and  the  inability  on  the  other  to  pre- 
sent its  points  clearly  and  in  order,  has  thrown  a 
dense  cloud  over  this  field  of  the  conflict,  so  that 
while  the  combatants  strike  lustily,  each  declares  that 
he  feels  no  blows,  and  the  mere  spectator  can  only 
guess  at  the  results  of  the  battle.  The  assertion  may 
seem  remarkable,  that  the  paper  advocates  are  not 


Il8  AN  ALPHABET   IN  FINANCE. 

able  to  present  their  own  theories  ;  but  a  discussion 
with  them,  or  a  study  of  their  pamphlets  will  amply 
illustrate  the  fact.  The  lack  of  logic  which  makes  it 
possible  to  hold  the  paper-money  theory,  prevents  at 
the  same  time  the  systematic  formulation  of  it.  The 
matter  becomes  less  extraordinary,  when  we  consider 
that  the  systematic  formulation  of  such  a  theory  is 
its  refutation. 

Gathering  up  the  fragmentary  ideas  which  the 
paper  theorists  scatter  through  their  writings,  we 
shall  find  that  the  3.65  bond  scheme  is  really  a  varia- 
tion on  the  "  closed  circle  "  plan.  The  bonds  are 
simply  intended  to  regulate  the  volume  of  the  cur- 
rency, and  not — at  least  not  primarily — to  give  value 
to  the  notes.  They  are  designed  simply  to  furnish 
an  outlet  of  investment  for  excess,  and  a  reservoir  of 
currency  to  meet  increasing  demands.  They  are  the 
patent  attachment  for  securing  "  elasticity."  In  de- 
fault of  any  clear  and  straightforward  statement  by 
an  advocate  of  the  scheme,  let  us  make  one  ourselves 
of  as  strong  and  plausible  a  kind  as  possible.  We 
may  do  it  thus  : 

I.  The  government  receives  service  from  indi- 
viduals and  renders  service  to  the  whole  community. 
It  pays  and  is  paid.  And  the  sum  it  pays  out  is 
exactly  equal  to  the  sum  it  receives.     Let  this  flow 


THE  BOND   SCHEME  AT  ITS  BEST.  II9 

and  reflow  from  the  Treasury,  therefore,  take  place 
with  paper.  Let  the  government  issue  its  notes  for 
its  debts,  and  redeem  those  notes  by  accepting  them 
in  satisfaction  of  its  credits — for  taxes,  etc.  That 
which  will  extinguish  a  debt — as  a  debt  of  taxes,  cus- 
toms, duties — has  a  natural  value. 

2.  But  notes  redeemable  only  by  acceptance  on 
counter  claims  might  be  issued  faster  than  they  could 
be  returned.  Or  again,  notes  issued  only  for  goods 
and  service  rendered  the  government  might  not  be 
sent  out  fast  enough.  Hence  the  danger  on  one 
side  of  an  excess  and  consequent  depreciation,  and 
on  the  other  of  a  scarcity  and  a  constriction  of  busi- 
ness. To  avoid  both  dangers,  to  enable  the  volume 
of  the  currency  to  expand  and  contract  according  to 
the  varying  demands  of  trade,  let  the  notes  be  con- 
vertible, at  the  option  of  the  holder,  into  bonds  bear- 
ing a  daily  interest  of  one  cent  on  a  hundred  dollars, 
and  let  the  bonds  be  convertible,  at  option,  into 
notes.  Any  excess  of  notes  will  then  be  immediately 
corrected  by  the  investment  of  the  surplus,  over 
ordinary  business  requirements,  in  government  bonds 
— practically  put  out  at  3.65  interest  in  call  loans. 
Any  scarcity  will  at  once  be  met  by  a  reconversion 
of  bonds  into  greenbacks. 

3.  Back  of  both  the  bonds  and  the  greenbacks 


I20  AN   ALPHA  BET   IN   FINANCE. 

stands  the  credit  of  the  government,  based  on  the 
embodied  wealth  of  the  whole  country.  Nor  is  this 
security  a  delusive  one  because  the  government  does 
not  propose  to  make  over  that  wealth  in  bulk  to  the 
holders  of  bonds  or  notes.  The  significance  of  the 
assurance  is  that  the  government  will  always  have 
power  to  draw  taxes,  customs  and  duties  from  that 
wealth,  and  thus  redeem  its  notes  and  pay  the  in- 
terest on  its  bonds. 

This,  we  think,  is  as  strong  a  statement  of  the 
bond  scheme  as  it  is  possible  to  make.  It  would  be 
easy  of  course  to  make  it  less  vulnerable  to  passing 
criticism  by  involving  it  with  illusory  complexities. 
But  as  a  plain,  straight-forward  presentation  of  the 
plan,  we  think  our  formulation  fairly  embraces  all 
points  of  strength  or  plausibility.  Even  should  a 
paper-money  beHever  deny  this,  he  cannot  deny 
that  it  brings  out  clearly  the  chief  features  of  the 
bond  idea. 

Yet  the  careful  reader  of  these  pages  will  have 
no  difficulty  in  detecting  a  weakness  in  the  scheme 
which  reduces  the  whole  structure  to  cloud  and 
smoke.  Where  is  the  measure  of  value  and  the 
standard  of  value?  The  notes  are  to  have  value 
because  they  will  pay  taxes.  A  "  dollar  "  note  is  to 
be  worth  a  "  dollar  "  because  it  will  be  received  for  a 


THE  BOND   SCHEME  AT  ITS  BEST,  i:?I 

"  dollar's  "  worth  of  taxes.  How  much  is  a  *'  dol- 
lar's "  worth  of  taxes  ?  How  can  you  measure  off 
any  definite  quantity  or  value  in  taxes,  customs  or 
duties?  We  could  measure  off  a  yard  of  cloth,  and 
call  that  a  "  dollar."  This  would  give  us  a  measure 
and  standard  of  value,  although  as  a  standard  it 
would  be  very  variable.  We  could  measure  a  bushel 
of  wheat,  or  a  peck  of  potatoes,  or  a  gallon  of  milk, 
or  a  pound  of  butter,  and  constitute  any  of  these 
the  unit  of  value-measurement,  calling  it — if  we 
Hked  the  name — a  *'  dollar."  But  how  can  we 
measure  off  taxes  ? — by  the  pound,  by  the  foot,  by  the 
quart  ? — is  there  any  possible  way  of  measuring  them  ? 
Evidently  the  only  way  to  measure  taxes  is  by  a 
measure  of  value.  A  tax  is  imposed  as  a  certain  per 
centage  of  the  value  of  the  property.  You  have  got 
to  have  your  unit  of  value-measurement,  your  "  dol- 
lar ''  or  whatever  it  may  be,  before  you  can  measure 
taxes  at  all.  It  is  as  sheer  nonsense  to  talk  of  using 
taxes  as  a  measure  of  value  as  it  would  be  to  say  we 
will  establish  a  unit  of  value  by  per  centage — let  us 
call  five  per  cent  a  dollar.  Five  per  cent  of  what  ? 
The  only  way  to  obtain  a  measure  of  value  is  to  take 
some  valuable  thing  which  can  be  measured,  and 
agree  that  a  certain  quantity  of  it  shall  be  the  unit 
of  value.     The  United  States  has  taken  gold,  and 


122  AN  ALPHABET  IN  FINANCE, 

declared  its  unit  of  value-measurement  to  be  25.8 
grains,  -^-^  fine.  It  calls  this  quantity  of  gold  a 
*'  dollar  " — it  might  have  called  it  an  '*  eagle,"  or  a 
"  dime  "  if  it  so  chose.  And  for  convenience  and 
the  security  of  the  people,  it  puts  this  quantity  of 
gold  and  multiples  of  it  in  the  form  of  coins,  stamped 
with  the  government  certificate  of  value. 


CHAPTER  XXII. 

FRACTIONAL  CURRENCY. 

HE  ill-advised  measure  of  "silver  substitu- 
tion," that  is,  the  substitution  of  silver 
"  change  "  for  the  paper  fractional  notes,  has 
been  so  unfortunately  confounded  with  the 
specie  resumption  question,  that  a  few  words  respect- 
ing it  are  necessary. 

The  first  principle  of  subsidiary  coinage  is  simple 
enough.  Gold  is  too  valuable  a  metal  to  express 
conveniently  the  small  values  of  minor  exchanges  ; 
a  *'  cent  "  in  gold  would  weigh  about  a  quarter  of  a 
grain.  Therefore,  cheaper  metals,  metals  having 
more  bulk  in  proportion  to  their  value,  are  used,  as 
silver,  nickel,  copper. 

But  the  matter  becomes  a  little  more  complex 
when  it  is  understood  that,  usually,  subsidiary  or 
fractional  coins  are  made  of  less  metallic  than  nom- 
inal value.  They  are  merely  tokens,  and  without 
promise  of  redemption  in  standard  coin.  They  are 
the  same  in  character  as  inconvertible  paper  notes, 


124  AN   ALPHABET   IN   FINANCE. 

and  the  fact  that  they  are  nevertheless  able  to  cir- 
culate without  depreciation  from  their  face  valuation 
is  thought  to  give  support  to  the  paper-money  idea. 
The  reader  will  have  no  difficulty  in  perceiving 
the  error.  We  have  seen  that  a  certain  small 
amount  of  inconvertible  notes,  ultimately  secured, 
might  circulate  without  depreciation.  So  long  as 
the  standard  money  is  not  displaced,  but  is  suf- 
fered to  remain  in  the  trade  channels  in  sufficient 
quantity  to  maintain  the  standard  of  value  and 
perform  its  functions  as  a  regulator  of  the  volume 
of  the  currency,  then  the  legal  tender  paper  is  up- 
held by  it.  But  this  limitation  of  quantity  is  secured 
with  regard  to  fractional  coins  by  three  provisions, 
(i)  By  direct  restriction  at  the  mint.  Our  mints 
will  not  coin  silver  upon  individual  order  as  they  will 
gold.  The  mint  buys  the  silver  and  issues  the  coin 
only  on  government  account.  (2)  By  a  seigniorage, 
or  charge  for  coining.  The  present  "half-dollar" 
contains  about  thirty-seven  cents  worth  of  silver,  at 
the  present  value  of  the  metal.*  But  thirty-seven  cents 
will  not  buy  a  half-dollar  coin  at  the  mint.  Every 
man  who  wants  such  a  coin  must  pay  for  it  at  its  face 
value.  With  standard  coins,  the  mint  is  only  paid  the 
proper  weight  of  gold,  25.8  grains  to  the  dollar.  The 
precise  bearing  of  this  on  our  depreciated  paper  should 

*  July  1876. 


FRACTIONAL    CURRENCY,  1 2$ 

be  noticed.  The' original  receivers  of  this  paper  paid 
in  real  value — in  the  value  of  the  goods  they  sold — 
very  much  less  than  a  standard  dollar,  twenty  per  cent, 
forty  per  cent,  sixty  per  cent  less.  (3)  By  cutting  off 
the  legal  tender  quality.  Fractional  coins  are  lawful 
money,  but  only  to  the  amount  of  five  dollars.  They 
can  only  be  used  for  small  "change." — These  three 
restrictive  measures  are  found  ample  to  keep  the  sub- 
sidiary coins  within  safe  limits  and  maintain  them  cur- 
rent at  standard  values  in  the  ordinary  course  of  trade. 
They  remain  convertible  to  all  intents  and  purposes, 
by  the  joint  operation  of  law,  custom  and  limitation. 
But  why  all  this  machinery  ?  why  not  make  sub- 
sidiary coins  of  exactly  proportional  value  to  the 
principal  coins?  Simply  because  that  would  put  on 
us  the  expense  of  coining  a  fresh  lot  of  change  every 
time  a  slight  rise  in  the  value  of  silver  made  it  profit- 
able to  export  our  halves  and  quarters  and  dimes. 
This  is  what  happened  in  the  year  following  1848. 
Fractional  coins  were  then  of  full  value.  The  slight 
fall  of  gold  sent  them  rushing  from  the  country,  and 
ferry  tickets,  'bus  tickets,  eating-house  cards  and  the 
like  were  made  to  serve  in  their  stead.  In  1853,  the 
fractional  coins  were  placed  on  the  basis  of  384  grains 
to  the  dollar  instead  of  4I2|-,  and  they  were  deprived 
of  their  unlimited  legal  tender  quality. 


CHAPTER  XXIII. 


FOREIGN  EXCHANGE, 


HE  matter  of  foreign  exchange  has  been 
made  a  deep  mystery  to  the  general  pub- 
lic— and  even  in  Wall  street  it  is  possible 
to  seek  information  without  getting  much 
light  on  anything  but  the  technical  and  "  practical " 
features.  In  itself  it  is  a  very  simple  affair,  and 
since  its  abstrusities  have  been  woven  into  many  of 
the  theories  about  specie  resumption,  with  the  result 
(if  not  the  design)  of  convincing  the  uninitiated  that 
for  him  to  have  an  opinion  is  a  bit  of  ludicrous  pre- 
sumption, it  becomes  important  to  subject  these 
abstrusities  to  a  common  sense  analysis. 

"Exchange"  is  a  process  of  settling  accounts 
between  parties  separated  by  long  distances,  or  by 
national  boundaries.  The  latter  kind  of  exchange 
is  what  we  have  now  to  do  with,  although  there  is 
in  principle  no  difference  between  "  Inland  "  and 
**  Foreign  Exchange."  In  its  primal  form,  foreign 
exchange  may  be   called  a  method   of  settling  by 


FOREIGN  EXCHANGE.  12/ 

pairing  off.  Thus :  American  A  owes  Englishman 
B  $1,000,  and  Englishman  C  owes  American  D 
$i,ooo.  Evidently  these  four  can  square  their 
reckoning  by  pairing.  Let  American  A  pay  Amer- 
ican D,  and  Englishman  C  pay  Englishman  B,  and 
the  whole  affair  will  be  adjusted.  Exactly  this  is 
accomplished  by  a  "  Bill  of  Exchange."  The  Amer- 
ican creditor,  D,  puts  his  claim  in  the  form  of  an 
order,  directing  his  English  debtor  to  pay  the  money 
to  B,  the  English  creditor  of  the  American  A.  A, 
the  American  debtor,  buys  this  bill  of  exchange 
(thus  paying  D  his  money)  and  forwards  the  docu- 
ment to  his  English  creditor,  who  collects  his  money 
from  C.  Here  is  the  essence  of  the  bill  of  exchange. 
But  in  commercial  usage,  by  far  the  greater  number 
of  bills  arise  in  a  practically  different  manner.  Thus, 
a  merchant  sends  cotton  to  England  :  he  does  not 
wait  for  the  English  merchant  to  buy  a  bill  of  ex- 
change and  send  it  to  him  ;  but  draws  a  bill  himself 
against  his  English  debtor  or  consignee,  on  the  secu- 
rity of  the  cotton,  and  sells  the  bill  to  a  broker.  The 
broker  forwards  the  same  to  his  English  correspond- 
ent, who  collects  from  the  consignee  on  the  delivery 
of  the  cotton.  This  change  in  the  process  of  draw- 
ing of  course  does  not  alter  the  character  of  the 
document  we  are  considering. 


128  AN  ALPHABET  IN  FINANCE. 

Now  let  us  study  the  main  features  of  this  credit 
paper.  We  note  in  the  first  place,  that  the  origin 
of  the  accounts  which  the  bill  is  used  in  settling  is 
the  exchange  of  goods.  D  sold  wheat  to  C,  and  B 
sold  tin  to  A.  The  values  of  the  wheat  and  the  tin 
are  measured  by  gold — C  and  A  are  debtors  by 
so  many  *'  pounds "  or  "  dollars."  But  neither 
*'  pounds  "  nor  **  dollars  "  pass  between  the  coun- 
tries. Instead  of  two  transportations  of  gold,  one 
from  America  to  England,  and  one  from  England 
to  America,  a  simple  bit  of  paper  goes  one  way. 
Hence  we  see  that  the  **  bill  of  exchange  "  per- 
forms, in  place  of  gold,  the  function  of  a  medium  of 
exchange  between  countries,  gold  remaining  still  the 
standard  and  measure. 

Now  as  to  the  very  important  question  of  rates 
of  exchange.  A  bill  of  exchange  may  be  regarded 
as  a  commodity.  It  is,  in  form,  a  claim  for  a  certain 
sum  of  gold,  and  it  has  trade  value,  apart  from  its 
specific  value  as  such  claim,  because  of  its  special 
uses.  This  trade  value  obviously  must  be  ruled  by 
the  common  trade  law  of  supply  and  demand. 
When  bills  of  exchange  are  plentiful  in  proportion 
to  the  demand,  they  fall  in  value,  when  scarce  they 
rise.  But  what  makes  bills  of  exchange  plentiful  or 
scarce  ?    A  bill  of  exchange  is  drawn  in  one  country 


~     FOREIGN  EXCHANGE.  1 29 

against  goods  which  have  been  sent  to  another  coun- 
try. Therefore,  in  any  country  bills  are  plentiful 
when  exports  are  large,  and  scarce  when  exports  are 
small ;  the  supply  is  conditioned  on  exports.  And 
what  creates  the  demand?  The  necessity  of  making 
foreign  payments ;  and  this  necessity  depends  upon 
imports.  Hence  the  relation  between  exports  and 
imports  gives  the  relation  between  the  supply  and 
demand  of  bills  of  exchange,  and  is  the  first  condi- 
tion determining  their  value.  When  imports  are 
heavy  in  proportion  to  exports,  the  demand  is  large 
and  the  supply  small — exchange  is  high  ;  and  vice 
versa. 

The  fundamental  law  well  understood,  we  may 
enter  into  particulars.  A  foreign  debt  is  a  gold  debt 
and  must  be  settled  on  a  gold  basis.  An  American 
sends  over  American  "  dollars  "  to  pay  a  debt  of 
English  "  pounds."  The  par  of  exchange  is  obvi- 
ously the  ratio  of  the  gold  values  of  the  moneys  of 
the  countries  concerned.  An  English  sovereign — the 
coin  equivalent  to  the  **  pound  " — contains  123.27447 
grains  of  gold,  11-12  fine: — of  pure  gold,  therefore, 
1 13.0016  grains.  A  United  States  dollar  contains 
25.8  grains,  -^  fine,  or  23.22  grains  pure.  The  num- 
ber of  times  23.22  will  "go  into"  1 13.0016  will,  of 
course,  give  us  the  number  of  doUaj&^aj^^Dvereign. 
6*  J^^^'^^^^^^s^ 

Uiri7BRSITTl 


130  AN   ALPHABET   IN  FINANCE. 

Performing  the  division,  we  find  that  a  sovereign  is 
equivalent  to  4.866  dollars.  So,  then,  we  say  that 
$4,863^  is  the  "  par  of  exchange  "  sterling.  Unfor- 
tunately for  the  general  understanding  of  this  matter, 
the  gold  dollar  of  the  United  States  was  reduced  in 
1834  and  again  in  1837 — the  total  reduction  being 
from  24.75  grains,  pure,  to  the  present  standard.  On 
the  basis  of  24.75  grains,  "  par "  was  figured  at 
$4.44^,  and  this  still  remains  by  custom  the  nom- 
inal par,  while  the  real  par,  $4,863^  gives  a  nominal 
premium  of  9^  per  cent.  This,  however,  need  not 
confuse  our  explanation.  The  par  is  the  ratio  of 
pure  gold  in  the  coins.  Now  evidently,  if  gold  could 
be  sent  from  country  to  country  with  absolutely  no 
expense,  exchange  would  remain  always  at  par.  The 
bill  of  exchange  would  be  ruled  out ;  it  could  effect 
no  economy.  But  the  transportation  of  gold  is  only 
accomplished  at  a  certain  cost,  for  carriage,  insurance, 
etc.  Hence  the  merchant  having  a  foreign  debt  to 
settle  will  be  willing  to  pay  a  premium  for  a  bill  of 
exchange,  provided  that  the  premium  does  not  ex- 
ceed the  cost  of  sending  gold.  And  here  is  the  key 
to  all  the  mystery  there  is  in  exchange  rates.  The^ 
cost  of  transmitting  bullion  is  the  limit  to  the  rise  of 
exchange  over  par. 

"  But,"  some  one  objects,  "  exchange  is  always 


FOREIGN   EXCHANGE.  I3I 

chosen  by  merchants  as  the  method  of  making  for- 
eign payments.  No  merchant  calculates  the  cost  of 
sending  gold,  nor  thinks  of  doing  such  a  thing."  Very 
true;  but  bankers  and  brokers  do  it  for  him.  A 
merchant  who  wishes  to  make  a  foreign  payment 
does  not  chase  around  to  find  another  merchant 
with  foreign  credit.  He  goes  to  a  broker  and  buys 
**  exchange  *'  there,  where  the  other  merchant  is  ac- 
customed to  bring  his  bills  for  sale.  The  cotton 
merchant,  we  saw,  did  not  wait  for  his  English  debtor 
to  send  over  a  bill  of  exchange.  He  drew  a  bill  him- 
self against  the  English  merchant,  and  sold  this  bill 
to  the  broker,  and  the  broker  sent  it  to  England, 
where  the  gold  was  collected  by  his  correspondent. 
Now  this  broker  has  a  credit  with  his  correspondent 
in  England  for  this  sum  of  gold.  Thus  he  can  sell 
exchange  to  that  amount  to  whomsoever  wishes  to 
buy.  He  does  not  sell  the  bills  sold  to  him.  He 
draws  his  own  bills  against  his  foreign  stock  of  gold. 
Now  if  that  stock  becomes  exhausted,  that  is,  if  bills 
to  replenish  that  stock  cannot  be  bought  by  the 
broker,  exchange  will  rise,  until  it  becomes  profitable 
for  the  broker  to  export  gold,  and  thus  be  able  to 
sell  bills  to  his  customers.  So  the  law  remains  un- 
broken. The  expense  of  exporting  gold  is  the  limit 
to  the  rise  of  exchange — one  item  of  such  expense 


132  AN   ALPHABET   IN   FINANCE. 

of  course  being  the  broker's  profit.  Exchange  may 
rise  just  enough  to  start  the  outflow  of  specie.  It  will 
rise  no  higher,  because  if  one  broker  can  afford  to 
sell  at  a  small  advance  on  the  cost  of  transmitting 
gold,  so  can  another.  Competition  will  regulate  the 
rates  here  as  elsewhere. 

Now  turning  the  matter  over,  let  us  put  the  ques- 
tion, How  low  can  exchange  fall?  Regarding  a 
merchant's  bill  of  exchange  as  a  commodity  of  trade, 
the  answer  is  easy  to  find.  Bills  of  exchange  are 
offered  for  sale.  The  greater  the  quantity  in  com- 
parison to  the  demand,  the  lower  their  value.  But 
they  are  simply  so  many  claims  for  gold  payable  (say) 
in  England.  Hence  should  they  fall  below  par  to 
such  a  degree  that  the  discount  becomes  greater  than 
the  cost  of  transmitting  gold,  then  it  will  become 
profitable  to  send  gold  from  England  to  buy  them  up. 
Thus  exchange  may  fall  just  low  enough  to  cause  a7i 
influx  of  specie^  but  no  lower,  because  the  import  of 
specie  will  keep  constant  pace  with  any  tendency 
that  way. 


CHAPTER  XXIV. 


BANKING. 


1 

1 

T  is  not  proposed  here  to  enter  into  any 
elaborate  discussion  of  the  subtle  subject 
of  banking ;  all  that  will  be  necessary  for 
the  end  in  view  is  an  outline  of  the  bank- 
ing principle. 

The  ordinary  conception  of  a  bank  is  crude  in 
the  extreme.  When  Mr.  Peter  Cooper,  in  his  lament- 
able advocacy  of  the  "  currency  reform,''  denounces 
the  idea  of  returning  to  specie  as  a  ruinous  plan  to 
"  substitute  for  this  currency  [greenbacks]  the  old 
fashioned  system  of  banking  on  credit,"  he  may  make 
one's  head  swim  in  the  endeavor  to  follow  his  course 
of  reasoning,  yet  he  does  not  far  misrepresent  the 
current  notions.  A  bank  is  regarded  as  a  sort  of 
store-house  for  money,  whose  managers  contrive  to 
turn  a  handsome  profit  by  availing  themselves  of  the 
circumstance  that  those  who  deposit  this  money  for 
safe-keeping  are  not  likely  to  call  for  it  all  at  once, 
but  will  probably  leave  a  margin  always,  which  the 


134  AN  ALPHABET   IN   FINANCE. 

banker  may  do  business  on,  loaning,  shaving  notes 
and  what  not.  A  bank  therefore  might  be  com- 
pared to  an  establishment  for  the  storage  of  furni- 
ture, where  the  enterprising  proprietor  ran  a  snug 
little  private  business  by  hiring  out  chairs  for  parties 
and  pianos  for  concerts. 

While  there  is  a  trace  of  the  reality  in  these 
vague  notions,  it  is  almost  hidden  by  the  abounding 
falsities.  A  bank  does  receive  and  does  lend,  but 
it  does  not  receive  money  nor  lend  money  except  in 
a  very  small  proportion.  And,  further,  this  lending, 
so  far  from  being  a  little  side  arrangement  for  the 
banker's  benefit  which  the  depositors  acquiesce  in,  is 
the  chief  purpose  of  the  bank's  existence,  the  thing 
which  makes  it  the  great  engine  of  trade.  We  say 
that  a  bank  does  not  receive  money.  What  then 
does  it  receive  ?  Checks,  promissory  notes,  bills, 
various  kinds  of  credit  paper.  It  receives,  that  is, 
evidences  of  debt,  titles  to  money  (nominally),  claims 
upon  other  banks,  upon  merchants,  upon  sundry  debt- 
ors. Of  a  sum  of  ;^  1 9,000,000  paid  into  his  banking 
firm  in  London,  Sir  John  Lubbock  found  that  there 
was  of  coin  only  one  half  of  one  per  cent,  and  of  coin 
and  bank-notes  together  only  three  per  cent.  Nine- 
ty-seven per  cent  was  composed  of  checks  and  bills. 
But,  it  may  be  asked,  does  not  the  bank  collect  these 


BANKING.  135 

checks  and  these  bills  when  they  fall  due  ?  Certainly, 
but  it  receives  its  pay  in  other  checks  and  bills,  and 
meantime  its  vast  business  of  lending,  aggregating  to 
many  times  the  amount  of  actual  property  under  its 
control,  is  going  on  without  hindrance. 

There  need  be  no  mystery  about  this.  A  bank 
receives  checks,  notes  and  bills  from  its  customers. 
These  are  the  titles  for  debts  which  it  must  collect. 
But  how  is  the  collection  accomplished  ?  If  the  bank 
simply  received  the  money  due  on  this  paper  and 
passed  it  over  to  the  several  creditors,  it  would  not 
be  a  "  bank ''  at  all.  It  would  be  nothing  more  than 
a  collector.  It  does  not  care  to  receive  money  for 
the  entire  amount  of  the  paper  committed  to  it.  It 
has  learned  from  experience  that  only  a  little  will  be 
drawn  by  its  depositors  at  any  one  time.  It  may 
therefore,  with  safety,  grant  to  those  who  need,  the 
privilege  of  receiving  the  money  which  it  would 
otherwise  get,  permitting  them  to  use  it  until  the 
depositors  will  probably  call  for  it.  It  does  this. 
Receiving  for  collection  from  A  a  check  for  $5,000,  it 
authorizes  B,  C,  D  and  E  to  draw  checks  against 
itself  for  $1,000  each,  they  standing  ready  to  refund 
before  A  will  want  to  draw.  Theoretically  it  collects 
$5,000  and  pays  out  $4,000,  having  a  balance  left  of 
$1,000.     Practically,  these   sums  of  money   do   not 


13^  AN  ALPHABET  IN  FINANCE. 

pass  at  all.  Suppose  that  A's  $5,000  check  is  a  check 
upon  the  bank  itself,  received  by  A  from  some  other 
depositor  in  the  same  bank.  Then  the  bank  simply 
transfers  the  credit  of  $5,000  from  that  other  deposi- 
tor to  A.  And  suppose  also  that  the  checks  for 
$1,000  each,  which  B,  C,  D  and  E  draw,  are  drawn 
in  favor  of  other  depositors  of  the  same  bank,  then, 
(these  depositors  not  wishing  to  drag  about  cash  in 
their  pocket)  the  checks  are  simply  deposited  in  the 
bank  for  collection  as  in  the  case  of  A's  check,  with 
the  result  of  transferring  credit  on  the  bank  books 
from  B,  C,  D  and  E,  to  W,  X,  Y,  and  Z.  Very  good 
thus  far.  Not  a  penny  in  cash  has  come  in  or  gone 
out  of  the  bank.  Nothing  has  happened  but  a  trans- 
fer of  claims  upon  the  resources  of  the  bank. 

But  suppose  the  parties  concerned  do  not  do 
business  at  the  same  banks  but  use  a  half  dozen 
different  banks.  Still  the  case  is  not  essentially 
altered.  The  requirement  now  is  that  credits  shall 
be  transferred,  not  from  one  place  to  another  in  the 
books  of  the  same  bank,  but  from  the  books  of  one 
bank  to  the  books  of  another.  It  is  true  that  if  but 
one  transaction  be  performed,  cash  must  pass.  In 
order  to  transfer  a  credit  of  $5,000  from  the  People's 
Bank  to  the  Bank  of  the  Commonwealth,  it  is  neces- 
sary for  the  People's  Bank  to  pay  the  Bank  of  the 


BANKING.  137 

Commonwealth  an  actual  sum  of  $5,000 — provided 
this  is  the  only  transaction  between  these  banks. 
But  suppose  that  while  A  deposits  in  the  People's 
Bank  a  check  for  $5,000  drawn  on  the  Bank  of  the 
Commonwealth,  Y  deposits  in  the  Bank  of  the  Com- 
monwealth a  check  for  $5,000  drawn  on  the  People's 
Bank.  Then  no  money  need  be  sent  one  way  or  the 
other.  And  this  is  just  the  state  of  things.  In  the 
complex  operations  of  business,  the  various  banks 
permit  checks  to  be  drawn  against  themselves  and 
receive  checks  drawn  against  other  banks.  To  run 
about  collecting  and  paying  cash  would  be  an  absurd 
proceeding.  They  keep  accounts  with  one  another, 
and  cash  only  passes  hither  and  thither  in  small 
sums  to  settle  trifling  balances  from  day  to  day. 
The  system  by  which  the  banks  thus  adjust  their 
reckoning  among  themselves  is  that  centre  of  popu- 
lar curiosity  and  thing  of  wondrous  mystery,  the 
Clearing  House  system.  The  checks  which  a  bank 
receives  for  collection  it  sends  to  the  Clearing  House 
and  there  is  credited  for  them  ;  the  checks  sent  by 
other  banks  against  itself  appear  as  debts.  The 
small  difference  between  the  two  is  wiped  out  by 
receipt  or  payment  of  cash. 

Now  let  us  return  to  that  original  $5,000  check. 
A  deposits  it  and  is  credited  on  the  bank  books 


138  AN  ALPHABET   IN  FINANCE. 

But  the  bank  knows  that  he  will  not  draw  it  all  out 
very  soon — suppose  it  were  certain  that  he  would 
not  call  for  more  than  $1,000  for  three  months. 
The  bank  lends  the  rest,  $4,000,  to  B,  C,  D  and  E, 
say  at  thirty  days.  At  the  end  of  this  time,  B,  C,  D 
and  E  pay  ;  but  A  does  not  want  his  $4,000  yet, 
and  the  bank  lends  again  to  F,  G,  and  H — and  so 
on.  Clearly,  by  the  operation  of  banking,  this  $4,000, 
which  otherwise  would  have  remained  idle  for 
three  months,  is  kept  continually  at  work  pro- 
ducing. 

It  is  scarcely  necessary  to  observe  that  the  bank 
does  not  know  as  a  rule  how  long  any  particular 
depositor  will  leave  his  claim  undrawn  ;  experience 
shows  a  general  average  per  centage  of  deposits 
which  a  bank  may  safely  loan,  and  it  is  the  banker's 
business  to  so  study  the  course  of  production,  con- 
sumption and  general  trade  as  to  be  able  to  forecast 
the  probabilities.  And  here  a  remark.  It  is  very  true 
that  bankers  do  not  study  as  deeply  in  this  latter 
direction  as  they  might.  They  are  prone  to  content 
themselves  with  a  mere  acquaintance  with  the  gen- 
eral run  of  things  in  the  past,  devoting  most  of  their 
energies  and  faculties  of  observation  to  the  solution 
of  the  immediate  and  more  obtrusive  questions ; — is 
this    man   who  wants,  to    borrow   honest  ?   is    he 


BANKING.  139 

engaged  in  legitimate  trade  ?  does  he  generally 
succeed?  are  his  intentions  good?  To  put  the 
matter  in  brief,  an  ideal  banker  would  have  foreseen 
the  crash  of  '73,  because  he  would  have  marked  how 
the  capital  of  the  country  which  it  needed  for  pro- 
duction— and  not  the  savings  for  which  it  had  no 
present  use — was  being  flung  away  in  bad  trading, 
or  buried  where  it  could  not  produce  again  for  years. 
He  would  have  known,  moreover,  that  the  vast  de- 
struction of  the  war  would  make  a  period  of  slow 
recuperation,  "  hard  times,"  inevitable  ;  that  to  put 
it  off  was  only  to  make  it  worse  when  it  did  come. 
But  the  average  banker  foresaw  nothing.  Every- 
body seemed  to  be  doing  a  splendid  business,  prices 
were  high,  exchanges  rapid,  borrowing  brisk  and 
returns  speedy.  And  so  the  destruction  of  capital 
went  on  until  no  more  could  be  had  for  the  purpose. 
Then  the  question  arose,  where  is  the  capital  which 
we  loaned  ?  And  the  honest  men,  and  the  well- 
intentioned  men,  and  the  long  successful  men  pointed 
to  the  railroads  of  the  Western  wilds  !  This  is  too 
large  a  field  for  more  than  a  dash.  Yet  a  dash  will 
show  the  absurdity  of  charging  the  results  of  bad 
banking  upon  the  trifle  of  gold  used  in  the  business. 
Bad  banking  may  prevail  with  any  kind  of  money, 
the  only  distinction  being  that  a  poor  money,  or  a 


I40  AN   ALPHABET   IN    FINANCE, 

false  money  like  depreciated  and  fluctuating  paper, 
tends  to  induce  the  evil  and  greatly  to  exag- 
gerate it. 

To  return,  we  are  now  prepared  to  see  the  pur- 
pose of  a  bank.  It  receives  claims  for  collection,  and 
uses  the  proceeds  to  make  loans.  This  is  its  constant 
work.  Very  little  money,  proportionately,  crosses 
its  counters.  It  takes  in  evidences  of  debt,  and 
makes  them  the  basis  of  credit.  Yet,  let  us  analyze 
a  little  further.  How  did  A  come  by  his  check  for 
$5,000?  Let  us  answer  that  he  is  a  farmer  and  re- 
ceived it  for  wheat.  This  check  transfers  to  A  a 
purchasing  power;  he  has  bought  this  purchasing 
power  with  his  wheat.  But  he  does  not  care  to  use 
it  at  once,  perhaps  not  for  six  months.  The  banker, 
understanding  this,  makes  loans  of  portions  of  this 
purchasing  power  to  B,  an  importer  of  cloth ;  C,  a 
dealer  in  cotton ;  D,  a  manufacturer  of  shoes,  and 
others.  B  buys  cloth  and  sells  it  again,  C  buys  cot- 
ton and  sells,  D  carries  on  his  manufacturing  and  re- 
ceives his  return — all  before  A  has  need  of  the  pur- 
chasing power  of  his  wheat.  Now,  what  is  it  that 
has  bought  the  cloth  and  cotton  and  run  the  wheels 
of  the  manufactory?  Why,  the  wheat.  And  so 
again,  we  reach  the  bottom  principle,  that  trade  is  an 
exchange  of  goods.     In  simpler  exchanges  we  found 


BANKING,  141 

money  acting  as  the  medium  of  exchange.  Here  we 
find  that  the  bank  performs  the  function  of  a  medium 
- — money  standing  behind  all  the  operations,  discharg- 
ing as  ever  its  office  as  a  measure  of  value. 


CHAPTER  XXV. 

WHA  T  IS  A  SPECIE  BASIS? 

F  we  are  to  make  a  deliberate  effort  to  get 
back  to  a  **  specie  basis,"  it  is  a  matter  of 
some  importance  to  know  what  a  "  specie 
basis  "  is.  The  phrase,  in  some  respects,  is 
an  unfortunate  one,  and  out  of  a  cloud  of  misconcep- 
tions of  its  meaning  floods  of  nonsense  and  crudity 
come  pouring  continually.  Even  men  of  hard  money 
convictions  (more  accurately  hard  money  traditions) 
are  frequently  carried  off  their  feet,  and  whirled  out 
of  their  common  sense  and  their  very  knowledge  of 
facts. 

It  is  in  the  nature  of  a  stock  argument  with  a 
certain  class  of  reasoners  to  compare  a  system  of 
exchange  which  is  "  based ''  on  gold  to  a  pyramid 
standing  on  its  apex — the  well-known  tendency  of 
pyramids  placed  in  such  unnatural  posture  being 
supposed  to  figure,  with  exceeding  force  and  appro- 
priateness, the  unreliable  character  of  specie-based 
currency  and  banking.     And  a  certain  popular  writer 


WHAT  IS   A    SPECIE    BASIS?  1 43 

has  further  elucidated  the  matter  by  a  more  ingeni- 
ous figure  still — *•  a  balloon  hanging  up  and  hitched 
to  its  basket  and  ballast ;  "  whereby  trade,  "  hitched  " 
to  gold,  is  vividly  presented  as  rolling  about  with 
every  breath  of  wind,  or  going  "  kiting  "  at  the  snap- 
ping of  a  guy. 

The  principles  presented  in  these  pages  have 
been  studied  to  little  purpose,  if  the  reader  does  not 
readily  see  that  such  illustrations  illustrate  nothing 
but  the  blunders  of  the  persons  inventing  them.  As 
we  observed  in  Chapter  XII,  the  proposition  to  re- 
quire the  National  Banks,  as  a  preparation  for  resump- 
tion, to  accumulate  a  store  of  gold  equal  to  one- 
third  of  their  note  circulation,  has  been  received  with 
a  shout  of  indignation.  The  "pyramid,"  to  take 
a  mild  view,  would  be  something  like  $300,000,000, 
the  "  apex "  $100,000,000  or  so.  But  then  some 
sages  add  the  bank  deposits  to  the  outstanding  cir- 
culation ;  whence,  on  the  apex  of  $100,000,000  looms 
up  a  vast  geometric  solid  of  perhaps  $900,000,000. 
Or  again  some  still  more  profound  expert  (Geti.  Ew- 
ing  for  example)  strikes  the  ratio  between  the  pro- 
posed coin  reserve  and  the  total  annual  exchanges  of 
the  country,  when  the  pyramidal  body  swells  to  the 
frightful  size  of  $30,000,000,000 !  And  finally  a 
particularly  tremendous  fellow  with  statistics  tries  his 


144  AN   ALPHABET   IN   FINANCE. 

hand,  and  brings  to  light  such  facts  as  that  transac- 
tions aggregating  to  the  enormous  amount  of  $ioo, 
000,000  a  .day  are  carried  through  at  the  London 
Clearing-House  without  the  use  of  a  single  coin — 
when  indeed  a  full-blown  balloon  bursts  on  the  stag- 
gering sight,  with  not  even  an  ounce  of  "  ballast  *' 
to  stay  its  flight  to  the  clouds  ! 

But  let  us  soberly  and  rationally  ask  the  ques- 
tion, what  do  we  mean  by  "  basis  ?  "  Do  bank-notes 
depend  for  their  goodness  upon  the  mere  gold 
reserve?  By  no  means.  Property  equal  to  their 
full  value  is  held  by  the  bank  for  their  redemption. 
With  our  National  Banks,  it  is  the  government  bonds, 
lodged  at  Washington,  which  constitute  the  real 
foundation.  The  twenty-five  or  fifteen  per  cent 
** reserve''  is  only  the  supply  of  ready  cash  for  so 
many  notes  and  other  cash  claims  as  may  be  pre- 
sented to-day.  And  what  is  the  "  basis  "  of  a  mer- 
cantile promissory  paper?  Not  merely  the  quantity 
of  coin  which  the  merchant  carries  in  his  breeches 
pocket ;  but  the  goods  which  he  holds  in  his  ware- 
house. What  is  the  basis  of  the  common  book 
credits  ?  We  have  not  thought  necessary  to  dwell 
upon  these,  yet  they  accomplish  the  exchange  of 
millions  of  property — are  a  medium  to  enormous 
amounts.     What  are  they  bottomed  on?     Not  the 


WHA  T  IS  A    SPECIE    BASIS?  I45 

trifling  sums  of  money  which  the  trading  merchants 
have  in  their  tills,  but  the  merchandise  which  is  ex- 
changed by  their  agency.  What  is  the  basis  of  a  bill 
of  exchange?  The  wheat,  the  iron,  or  the' cloth, 
whose  transfer  in  ownership  the  bill  is  effecting. 
What  is  the  basis  of  banking?  Not  the  pin's  point 
of  metal  whose  proportions  are  too  insignificant  to 
reckon ;  but  the  valuable  possessions  of  the  note- 
drawers,  the  cotton,  leather,  tobacco,  tea,  silks, 
houses,  lands,  manufacturing  establishments,  canals, 
railroads— of  the  parties  who  borrow. 

Then  what  do  we  mean  by  a  "specie  basis?** 
We  mean  really  the  basis  of  a  specie  standard  diwd  a 
specie  measure  of  value.  Trade  rests  on  a  "  specie 
basis,"  when  specie  is  the  basis  of  reckoning  and 
settlement.  All  these  other  instrurnentalities  simply 
act  as  mediums  of  exchange.  If  the  pyramidal 
theory  leads  to  any  conclusion,  it  is  that  promissory 
notes,  bills  of  exchange,  bonds — all  these  tools,  must 
be  abolished  and  destroyed.  To  take  away  the 
apex  of  metal,  and  substitute  an  apex  of  softer  stuff 
will  not  stiffen  the  **  toppling  superstructure*'  (to 
use  the  picturesque  phrase  of  Senator  Jones)  by  a 
grain.  We  are  on  a  "  specie  basis  **  when  gold  stands 
behind  and  beneath  all  trade,  measuring  all  values 
that  they  may  be  equitably  exchanged,  and  furnish- 
7 


14^  AN  ALPHABET  IN   FINANCE. 

ing  a  standard  of  value  as  nearly  as  possible  fixed 
and  unfluctuating.^  In  one  sense,  indeed,  it  is  im- 
possible to  escape  a  specie  basis.  Values  at  home 
are  in  a  very  large  degree  regulated  by  values  abroad, 
as  every  farmer  and  every  producer  who  comes  in 
contact  with  the  foreign  market  ought  keenly  to  feel. 
We  cannot  really  escape  the  specie  standard,  but  we 
can  drive  out  our  gold,  so  that  the  measures  of 
value  may  come  to  us  at  second  hand  and  be  very 
much  falsified  in  the  transit.  To  get  down  to  a 
"  specie  basis  "  is  to  get  down  close  to  it.  And  the 
reason  we  ought  to  get  down  to  it  without  delay,  is 
because  it  is  the  best  basis  which  men  have  been 
able  to  discover — because  gold  furnishes  the  best 
standard  of  value  and  the  best  measure  of  value 
among  all  the  valuable  things  of  which  such  standard 
and  measure  might  be  made. 

The  specie  payment  question,  then,  is  one  of 
transcendent  importance.  It  is  not  the  comparative 
trifle,    Shall    the  United    States   redeem   the   four 

*  There  is  of  course  a  question  of  reserve  which  is  very  important. 
In  the  vast  operations  of  credit,  as  we  have  seen,  although  a  dollar's 
worth  of  value  stands  behind  each  dollar  of  credit  (rare  exceptions 
being  made  for  dishonesty  and  imprudence),  a  certain  amount  of  gold 
is  necessary  in  specie  times,  to  meet  small  balances,  here  and  there, 
as  they  arise.  If  this  amount  is  not  retained  in  reserve,  or  not  prop- 
erly managed,  trouble  ensues.  But  obviously  these  difficulties  would 
be  present  in  any  system  of  exchange. 


WHAT  IS  A    SPECIE    BASIS?  147 

hundred  millions  of  outstanding  legal  tenders  and 
fractional  paper?  The  real  question  is,  Shall  the 
millions  and  billions  worth  of  property  exchanged 
yearly  within  our  borders  and  between  us  and  for- 
eign nations  be  exchanged  at  true  or.  at  false  ratios 
of  value  ?  That  is  the  question ;  and  whether  the 
people  of  the  United  States  see  it  or  not,  their 
material  interests  are  more  immediately  and  more 
deeply  involved  in  it  than  in  any  other  question 
or  •'  issue  "  which  scheming  politicians  can  possibly 
cook  up. 


.   CHAPTER   XXVI. 

THE  "BALANCE  OF  TRADE:' 

.^ILL  trade  when  sifted  to  the  bottom,  is  an 
exchange  of  goods.  Even  when  money, 
gold,  is  ruled  out  of  the  list  of  commodities, 
and  considered  merely  as  a  sort  of  middle 
ground  upon  which  the  values  to  be  traded  are  de- 
posited in  course  of  transit  from  owner  to  owner,  this 
proposition  holds  true.  The  obscuration  of  this  fact 
seeming  to  be  the  fog  out  of  which  come  the  com- 
mon errors  respecting  the  so-called  "  Balance  of 
Trade,"  let  us  make  it  plain. 

Two  merchants  have  frequent  and  extensive  deal- 
ings with  each  other.  They  do  not  send  back  and 
forward  the  cash  for  each  purchase,  but  simply  enter 
sales  and  purchases  in  a  book,  and  at  convenient  in- 
tervals strike  a  balance  which  they  settle  with  money. 
Observe  here,  that  the  real  trade  is  evidently  and 
directly  an  exchange  of  goods.  The  amount  of 
money  used  bears  no  particular  proportion  to  the 
magnitude   or  multiplicity   of   the  transactions,  al- 


THE    BALANCE    OF    TRADE,'  I49 

though  it  is  certainly  small  in  comparison.  But  sup- 
pose it  chances  to  be,  on  a  certain  settling  day,  a  con- 
siderable sum  :  Merchant  A  finds  that  he  has  bought 
of  Merchant  B,  over  what  he  has  sold  to  him,  goods 
to  the  amount  of  $10,000.  The  "  balance  of  trade," 
so  to  speak,  is  against  him.  He  has  to  clear  off  that 
balance  with  money.  Where  does  he  go  for  this 
money?  Does  he  sweep  together  the  sums  in  his 
pocket  and  till  with  which  he  had  intended  to  pay 
his  clerk-hire,  his  rent,  his  gas  bills  ?  Or  has  he  an 
immense  store  of  gold  in  the  cellar  out  of  which  he  is 
accustomed  to  pay  his  balances?  Neither,  surely. 
He  provides  for  the  $10,000  balance,  or  has  provided 
in  advance  for  it,  by  sales  of  goods  to  other  mer- 
chants than  B,  for  which  he  receives  cash  at  the  time 
of  need.  That  is  to  say  he  in  reality  settles  his 
*' balance  of  trade  "  with  B  by  turning  over  goods  to 
C.  But  then  taking  B  and  C  together,  there  is  no 
"  balance  of  trade  "  against  A  at  all.  He  has  sold 
precisely  as  much  as  he  bought ;  only,  for  the  tem- 
porary adjustment  of  his  reckoning,  he  needed  to 
make  use  of  the  tool  of  trade — money. 

And  when  the  circle  is  completed,  we  shall  find 
always  that  he  has  traded  goods  for  goods.  He  may 
have  traded  well  or  ill ;  may  come  out  with  wealth 
or  poverty,  but  his ''  balance  of  trade  "  will  be  evened 


ISO  AN  ALPHABET   IN   FINANCE. 

off  just  the  same.  His  balances,  big  or  little,  will  have 
no  influence  upon  his  prosperity.  This  last  state- 
ment will  puzzle  some — at  least  if  they  follow  the 
logic  of  a  host  of  superficial  reasoners  on  this  sub- 
ject. Let  us  make  it  still  clearer.  Suppose  a  mer- 
chant starts  trade  with  a  lot  of  silks  worth  $10,000. 
Say  he  sells  these  silks  for  $10,000,  and  buys  muslin 
with  the  proceeds.  He  sells  the  muslin  for  $8,000 
and  buys  calico  with  the  proceeds.  He  sells  the 
calico  for  $6,000,  and  with  that  money  purchases  a 
country  cottage  and  retires  from  business.  Evidently 
his  trading  sums  up  to  this,  that  he  has  exchanged 
his  silks,  worth  $10,000,  for  a  cottage  worth  $6,000. 
He  has  lost  $4,000  value.  But  how  stands  his  ''  Bal- 
ance of  Trade  ?  " 

SALES.  PURCHASES. 

Silk $10,000        Muslin $10,000 

Muslin 8,000        Calico 8,000 

Calico 6,000        Cottage 6,000 


$24,000  $24,000 

These  principles  apply  in  exactly  the  same  way  to 
international  trade.  How  can  it  be  otherwise  ?  It  is 
not  necessary  to  trace  the  chain  of  exchange  through 
all  its  myriad  links  to  discover  the  truth.  What 
has  one  country  to  offer  another  but  its  products? 
Its  money?     Certainly  it   may  trade  off   its  stock 


THE    BALANCE    OF    TRADE,  Igl 

of  specie.  This  is  just  what  the  United  States  did. 
But  how  long  will  this  last?  How  long  can  a  mer- 
chant trade  by  giving  out  his  money — by  buying  and 
not  selling  ?  And  when  the  country's  stock  of  specie 
is  gone,  will  its  trading  cease  ?  The  average  stock  of 
specie  now  in  the  United  States  is  not  enough  to  pay 
for  our  imports  for  four  months.  Even  if  we  fall  into 
the  fallacy  of  reckoning  in,  as  money,  the  gold  prod- 
uct of  the  mines, — which  in  this  connection  should 
clearly  be  classed  with  the  cotton  or  wheat  crop — 
even  then  we  could  run  but  a  day  or  two  longer. 
Our  imports  of  late  years  average  over  $500,000,000. 
Our  gold  product  is  some  $36,000,000.  The  country 
must  be  trading  as  it  has  always  traded  (except  in 
the  brief  period  when  it  sold  its  money)  with  its  goods. 
It  pays  for  its  imports  by  its  exports,  the  respective 
values  of  these  being  measured  by  gold,  and  the 
transfers  of  values  effected  chiefly  by  bills  of  exchange. 
But  because  trading  is  not  even  at  particular  times, 
it  is  found  necessary  to  use  a  little  gold  to  settle  bal- 
ances, the  same  gold  running  back  and  forth,  now  to 
this  side  of  the  water,  now  to  that,  as  the  temporary 
need  arises. 

Reviewing  these  points,  we  find  that  the  Balance 
of  Trade,  so-called,  is  due  only  to  a  temporary  dis- 
turbance of  the  relation  of  imports  and  exports — a 


152  AN   ALPHABET   IN   FINANCE. 

relation  which  must  ultimately  be  one  of  equality  or 
equilibrium.  The  popular  notion,  that  if  a  nation 
were  very  well-behaved  and  economical  it  might 
have  the  "  balance  "  always  in  its  favor,  is  an  absurd 
blunder.  It  would  not  want  it  always  "  in  its  favor  " 
if  it  could  have  it  so.  For  that  would  merely 
signify  that  it  was  continually  receiving  gold,  for 
which  it  could  have  no  possible  use,  and  not  re- 
ceiving flax  and  tin,  and  wool  and  copper — mate- 
rials to  be  used  in  creating  new  wealth.  The  terms 
"favorable"  and  "  unfavorable,"  as  commonly  used, 
cover  a  very  curious  delusion.  An  excess  of  exports 
over  imports  makes  the  rates  of  exchange  favorable 
to  the  person  who  wants  to  pay  a  foreign  debt. 
Whether  such  excess  is  favorable  to  the  exporters 
depends  on  whether  they  get  profitable  or  losing 
prices ;  whether  such  excess  is  favorable  to  the  coun- 
try depends  on  whether  the  goods  which  ultimately 
return,  or  which  have  previously  been  received,  as 
even  payment,  are  or  were  really  as  valuable  as  the 
goods  sent  away,  and  whether  they  are  or  were 
goods  to  be  used,  or  already  used,  wisely  and  in 
creating  fresh  wealth,  or  fooHshly  and  in  mere  con- 
sumption. But  the  notion  is  a  blunder  all  the  way 
through.  The  real  Balance  of  Trade  cannot  remain 
long  on  one  side  or  the  other,  for  the  simple  reason 


THE   BALANCE    OF    TRADE.  1 53 

that  a  country  has  to  pay  for  what  it  buys,  and  must 
ultimately  pay  in  goods. 

But,  it  is  objected,  "  This  looks  fine  as  a  theory, 
but  it  does  not  accord  with  the  facts.  The  statistics 
show  that  the  Balance  of  Trade  has  been  against  the 
United  States  for  twenty  years,  excepting  in  1858, 
after  the  crisis  of  '57;  in  1862,  upon  the  opening  of 
the  war;  and  in  1874  on  the  heels  of  the  crash  of 
'73."  Very  good.  And  mark  that  these  "  favora- 
ble "  balances  were  the  sequels  of  disaster  in  every 
case.  The  "  Balance  of  Trade"  for  the  United  States 
as  shown  by  the  usual  statistics  does  not  give  a 
true  trade  balance  at  all.  In  other  terms,  the  differ- 
ence between  exports  and  imports  of  merchandise 
does  not  show  the  difference  of  all  the  values  ex- 
changed, but  only  of  the  values  of  ordinary  merchan- 
dise. In  the  first  place,  we  produce  gold  which  we 
export  exactly  as  we  export  cotton  or  wheat.  This 
gold  should  be  added  to  the  sum  of  exports,  and 
very  much  of  it  is  not  so  added.  But  the  merchan- 
dise which  returns  from  abroad  for  this  metal  is 
added  to  the  imports,  and  thus  the  "  Balance  "  is 
thrown  out  of  its  true  measure.  Yet  this  might 
pass.  A  still  greater  element  of  confusion  is  the 
fact  of  great  investments  of  foreign  capital.  This 
capital  is  continually  pouring  in  upon  us  in  the  pros- 
7* 


154  AN   ALPHABET   IN  FINANCE. 

perous,  growing  times — sent  over,  of  course,  by 
means  of  bills  of  exchange,  in  the  form  of  materials 
and  merchandise,  and  thus  being  reckoned  on  the 
side  of  imports.  And  this  capital  remains  here  ;  there 
is  no  return  in  merchandise  ;  it  is  put  at  work  in  fac- 
tories, railroads  and  what  not,  even  the  earnings, 
perhaps,  staying  within  our  borders  as  fresh  loans. 
To  strike  a  true  Balance  of  Trade,  the  foreign  capital 
here,  should  be  put  on  the  side  of  export,  as  if  paid 
back,  and  of  course  the  American  capital  sent  else- 
where put  on  the  side  of  import.  Were  this  done, 
the  Balance  of  Trade  would  disappear,  except  so 
much  as  is  settled  by  the  hitherward  and  thither- 
ward flow  of  a  small  quantity  of  gol4  for  temporary 
exchange  fluctuations.  What  is  it  that  suddenly 
turns  the  "Balance"  in  times  of  disaster?  Simply 
the  failure  of  credit,  and  the  hasty  withdrawal  of 
foreign  capital.  Observe  that  all  those  twenty  years 
of  *'  unfavorable  balances "  did  not  deprive  the 
United  States  of  its  gold  money.  When  was  it  that 
our  gold  disappeared  ?  When  the  inconvertible 
paper  was  crowded  into  the  trade  channels.  As  we 
saw  in  Chapter  XVI,  gold  had  to  go  abroad  then, 
because  it  was  driven  out  by  the  inferior  currency. 
Could  a  true  Balance  be  struck  for  that  period, 
we  should,  indeed,  fin3  it  an  "  unfavorable  "  one. 


THE    BALANCE    OF    TRADE.  1 55 

But  the  true  "  unfavorable  balance  "  was  not  the 
cause  of  the  gold  going  out ;  the  gold's  going  out 
was  the  cause  of  the  unfavorable  balance. 

The  phenomenon  becomes  exceedingly  simple 
when  we  consent  to  look  at  gold  as  at  any  other  com- 
modity. The  swelling  of  the  volume  of  the  currency 
necessitated  a  general  rise  in  "  prices ;"  in  other  terms, 
a  general  disturbance  of  values  (ratios  of  exchange)  in 
an  upward  movement.  But  gold  is  the  least  fluctu- 
ating of  commodities,  because  its  extreme  portability 
gives  it  the  power  of  responding  readily  to  demand. 
It  cannot  rise  far  in  any  particular  country,  in  rela- 
tion to  other  values,  because  the  tendency  will  be 
checked  by  imports  from  another  country.  Hence 
in  a  general  rise,  gold  becomes  the  cheapest  thing 
going  ;  as  in  a  general  fall  it  would  become  the  dear- 
est. In  the  upward  movement  in  this  country, 
therefore,  gold  became  the  cheapest  commodity,  and 
thus  the  most  profitable  for  export.  On  the  other 
hand  other  goods  were  the  most  profitable  for  im.- 
port.  The  commodity,  gold,  flowed  abroad,  and  the 
other  commodities  returned  to  pay  for  it.  Regard- 
ing gold  as  a  commodity,  of  course  there  is  never 
any  *'  balance."  But  in  the  table  of  statistics,  gold 
is  ruled  out.  Hence  those  tables  showed  at  this 
period  of  gold  exportation  a  heavy  excess  of  imports 


15^  AN   ALPHABET  IN  FINANCE. 

of  merchandise  over  exports  of  merchandise.  But 
this  excess,  evidently,  was  not  the  cause  of  the  ex- 
portation of  gold,  it  was  the  effect.  So,  when  the 
Balance,  the  true  Balance  of  Trade — meaning  the 
difference  between  export  and  import  of  value,  after 
properly  reckoning  in  the  gold  product  as  a  com- 
modity and  the  foreign  loans  as  withdrawn — when 
this  Balance  so  tufns  in  our  ''favor"  that  we  shall  see 
gold  circulating  in  common  trade,  it  will  turn  as  an 
effect;  the  change  will  not  be  the  cause.  This  will  be 
made  still  clearer  in  the  chapter  on  Resumption. 

One  word  more.  It  is  noticed  at  this  time,  that 
the  Balance  of  Trade  is  now  turning  in  favor  of  the 
United  States,  and  hence  numerous  journals  are 
looking  for  an  influx  of  gold  and  an  easy  return  to 
specie  payments.  They  will  look  in  vain.  The 
change  signifies  just  what  it  did  in  '58.  It  is  the 
natural  consequence  of  the  destruction  of  capital 
which  culminated  in  the  crash  of  '73.  Foreign 
capitalists  are  withdrawing,  and  the  excess  of  export 
means  simply  the  outflow  of  their  capital.  No  gold 
will  return  to  pay  for  it.  When  prosperity  returns, 
foreign  capital  will  flow  in  again,  and  the  "  Balance 
of  Trade"  will  once  more  be  against  the  United 
States,  as  it  should  be. 
Thi?  chapter  was  intended  to  be  limited  to  essentials.     In  view 


THE  BALANCE   OF   TRADE.  157 

of  certain  criticisms,  however,  it  seems  wise  to  add  one  or  two  sug- 
gestions :  The  United  States  (under  the  operation  of  their  ' '  protec- 
tive "  navigation  laws)  pay  to  foreigners  something  like  $130,000,000 
annually  for  marine  transportation.  The  equivalent,  sent  in  mer- 
chandise, enters  among  exports^  increasing  the  "balance  in  our 
favor  "  by  just  so  much. 

Strange  as  it  may  seem  to  Greenbackers  and  others  who  "  don't 
want  to  trade  with  the  world,"  it  sometimes  happens  that  an  Ameri- 
can vessel  will  carry  from  our  shores  a  cargo  worth,  say  $100,000, 
and,  selling  it  abroad,  bring  back  with  the  proceeds  a  cargo  worth, 
say  $150,000.  This  trader  obviously  makes  $50,000 — less  expenses. 
But  in  the  "  Balance  of  Trade  "  sheet  there  is  an  import  of  $150,000 
against  an  export  of  $100,000 ;  and  so  it  is  obvious  that  the  country 
has  lost  $50,000,  and  will  have  to  pay  the  deficit  in  hard  cash. 

Again,  a  vessel  will  leave  our  shores  with  goods  valued  at  $200,000, 
and  sink  in  mid-ocean.  The  owner  of  the  merchandise  loses,  of 
course,  but  the  country — has  it  not  gained  ?  Here  is  an  export  of 
$200,000  with  no  import  to  offset  it.  Certainly  this  increases  the 
*'  balance  in  our  favor." 

This  line  of  illustration  might  be  indefinitely  extended.  I  reserve 
space  to  reply  to  an  objection  which  continues  to  be  urged  with  re- 
markable pertinacity.  "  These  theories  are  very  fine,"  it  is  said,  "but 
for  all  that  we  have  had  an  influx  of  gold  as  a  consequence  of  the 
favorable  balance  of  the  last  four  years."  The  answer  is  a  simple 
one  :  You  are  mistaken.  The  exports  of  gold  have  exceeded  the  im- 
ports during  these  four  years  by  $33,195,113.  The  year  1880  will 
indeed  show  an  excess  of  imports,  but,  unfortunately  for  the  "  practi- 
cal "  men,  it  will  show  also  a  heavy  diminution  in  the  "favorable 
balance."     See  Appendix. 

One  final  remark.  The  country  has  gained  greatly  since  1876. 
The  ' '  balance  "  is  turning  steadily  to  the  * '  unfavorable  "  side.  Foreign 
capital  is  returning  ;  the  sales  of  American  securities  abroad  are  be- 
coming heavy. 

G.  McA. 

August,  1880. 


CHAPTER    XXVII. 

THE    SILVER    SCHEME. 

E  hold  now  in  hand  enough  of  the  laws  of 
money  and  money  circulation  to  discuss 
with  intelligent  minuteness  the  vexed  ques- 
tion of  re-monetizing  silver  ;  and  that  such 
discussion  is  necessary,  the  threatening  attitude  of 
the  national  legislators,  and  the  specious  talk  of  such 
papers  as  the  New  York  Graphic^  the  Cincinnati 
Co'tnmercial^  the  Chicago  Tribune,  and  many  other 
journals  of  more  or  less  eminence  and  influence, 
most  emphatically  declares.  For  the  issue  which 
has  been  raised  is  not  that  which  it  is  considered,  or 
pretended,  to  be  ;  and  the  hurrying  of  the  country 
to  a  false  conclusion,  by  an  ignorant,  deluded,  or  cor- 
rupted Congress,  would  be  a  calamity  for  which  the 
disasters  which  followed  on  the  heels  of  the  civil  war 
might  be  the  only  fit  measure  of  comparison. 

The  guiding  principles  to  a  logical  reasoning  on 
the  subject  are  these  : 

I.  Gresham's  Law:     An  inferior  and  a  superior 


THE    SILVER    SCHEME.  1 59 

currency  will  not  circulate  together.     The  inferior 
will  drive  out  the  superior. 

2.  The  principle  of  the  double  standard. 

3.  The  law  by  which  movements  of  specie  (either 
gold  or  silver)  are  regulated  by  the  action  and  re- 
action upon  each  other  of  the  supply  of  specie  and 
the  "  prices  "  of  goods. 

4.  The  laws  in  obedience  to  which  an  inconvert- 
ible paper  currency  depends  for  its  value  first  on  the 
value  of  that  in  which  it  is  to  be  ultimately  redeemed, 
and  secondly  on  the  amount  issued  in  relation  to  the 
need. 

5.  The  laws  generally  which  operate  in  and  with 
a  depreciated  and  fluctuating  currency. 

The  reader  will  have  no  difficulty  in  tracing  the 
working  of  these  principles  ;  they  are  all  simply  differ- 
ent phases  of  the  single  great  law  of  trade,  the  law 
of  supply  and  demand,  as  affecting  value. 

First  let  us  run  over  a  few  pertinent  facts  in  the 
history  of  American  coinage.  In  1792,  the  Federal 
Congress  established  a  "  unit  of  value,"  selecting  "  the 
value  of  a  Spanish  milled  dollar  as  the  same  is  now 
current  "  as  such  unit,  and  naming  it  a  **  dollar."  To 
have  set  up  any  other  value  at  this  time  as  a  unit 
would  obviously  have  disturbed  trade,  since  prices 
w^ere  adjusted  to  the  Spanish  coin.     The  American 


l6o  AN  ALPHABET   IN   FINANCE. 

dollar  was  not  coined  until  1794,  when  the  silver  dol- 
lar came  from  the  mint,  416  grains  of  silver,  892.4 
thousandths  fine — S/iJ-  grains  pure  silver.  This  was 
the  standard  unit,  the  legal  **  dollar.'*  Now  they 
attempted  to  set  up  the  standard  in  gold  also.  We 
perceive  that  they  had  a  difficult  task.  Exactly  how 
much  gold  -was  equal  to  416  grains  of  silver,  892.4 
thousandths  fine?  Alexander  Hamilton  endeavored 
to  give  an  approximate  answer  to  the  Federal  Con- 
gress, and  reported  that  the  ratio  was  about  one  to 
fifteen.  Accordingly  a  gold  "  dollar  "  was  established 
containing  one-fifteenth  as  much  of  pure  gold  as 
the  silver  **  dollar  "  contained  of  pure  silver.  The 
gold  '*  dollar  "  became  thus  27  grains,  916  2-3  thou- 
sandths fine  ;  24f  grains  pure.  But  it  turned  out 
that  Hamilton  had  placed  silver  a  notch  higher  than 
its  market  value  in  relation  to  gold.  In  other  terms, 
the  silver  '*  dollar  "  was  not  really  worth  as  much  as 
the  gold  **  dollar."  And  what  was  the  consequence  ? 
Simply  that  people  paid  their  debts  in  what  came 
cheapest — silver — while  they  found  it  profitable  to 
melt  up  gold  eagles  and  half-eagles,  (one  dollar 
gold  pieces  were  not  coined)  or  export  them  for  for- 
eign goods.  Gold  disappeared  from  circulation. 
There  was  no  double  standard  in  point  of  fact  at  all. 
Silver  was  the  only  money,  and  all  values  were  meas- 


THE    SILVER    SCHEME,  l6l 

ured  by  it.  The  coinage  remained  in  this  relation 
until  1834,  when  an  attempt  was  made  to  remedy  the 
difficulty.  An  act  was  passed  changing  the  mint 
ratio  to  one  to  sixteen.  A  **  dollar  "  in  gold  was  now 
only  23^  grains  pure,  instead  of  24|-  grains.  But 
now  gold  was  overrated.  The  gold  "dollar"  was 
inferior  in  the  market  value  of  its  metal  to  the  silver 
*'  dollar."  It  paid,  therefore,  to  discharge  debts  in 
gold  exclusively,  and  to  melt  and  export  silver. 
Hence  silver  was  driven  out ;  and  it  has  remained 
out  ever  since.  Evidently  silver  could  not  return  as 
money  unless  the  mint  ratio  was  altered,  or  the 
relative  metallic  values  of  gold  and  silver  became 
changed,  so  that  the  silver  "  dollar  '*  should  become 
worth  less  than  the  gold  "  dollar."  The  mint  ratio 
was  not  altered  except  in  a  very  slight  degree.  In 
1837  changes  ^vere  made  in  the  alloy  of  the  coins,  so 
that  the  gold  eagle  was  increased  in  metallic  value 
by  3^  of  a  grain  of  pure  gold,  its  weight  remaining  as 
before,  25  8  grains — giving  the  present  gold  dollar, 
25.8  grains,  -^  fine ;  while  the  silver  dollar  retained  its 
old  amount  of  pure  silver,  371 J  grains,  but  was  re- 
duced in  weight, — becoming  the  coin  of  41 2|-  grains, 
^\  fine,  which  is  now  celebrated  as  the  "  Dollar  of  Our 
Fathers,"  and  the  "  Money  of  the  Constitution."  The 
return  of  the  silver  dollar  thus  depended  on  a  change 


l62  AN  ALPHABET   IN   FINANCE. 

in  the  market  values  of  the  metals.  Up  to  1873  this 
change  had  not  taken  place,  and  in  1873  was  passed 
the  act,  now  denounced  by  certain  theorists  as  a 
stupendous  enormity,  which  deprived  silver  of  its 
quality  of  legal  tender  (except  for  small  change,  up 
to  five  dollars,)  stopped  the  coinage  of  the  silver 
"  dollar,"  and  left  the  gold  "  dollar  "  to  be  the  sole 
unit  of  value. 

We  thus  have  all  the  historical  facts.  We  need 
not  be  befooled  by  any  dogmatic  assertions  respect- 
ing them.  We  see  that  the  silver  **  dollar"  was 
demonetized  in  reality  by  the  change  of  the  coinage 
ratio  in  1834,  in  connection  with  the  inexorable  laws 
of  trade.  And  we  may  add,  that  from  1853,  when 
the  fractional  currency  trouble  was  settled,  (Chapter 
XXII)  the  coinage  of  the  silver  dollar  almost  entirely 
ceased.  The  silver  dollar  was  not  in  use,  all  trade 
was  adjusted  to  the  gold  standard.  So  far,  the  de- 
monetizing act  of  1873  simply  recognized  the  exist- 
ing facts.  Its  further  effect  was  to  relieve  the 
country  from  the  danger  of  those  recurring  disturb- 
ances which  are  inherent  in  the  nature  of  a  double 
standard. 

Nor  was  the  precaution  taken  any  too  soon. 
The  very  fact  which  now  furnishes,  the  silver  theo- 
rists with  the   reason  for  their  wrath,  justifies   the 


THE    SILVER    SCHEME.  163 

demonetizing  act  which  they  denounce.  Since  1873 
silver  has  fallen  below  gold  about  twenty  per  cent. 
We  cannot  stop  here  to  argue  this  matter  of  fact. 
An  ounce  of  gold  will  purchase,  taking  an  average 
of  staple  commodities,  very  nearly  the  same  quantity 
of  goods  to-day  that  it  would  in  1873.  An  ounce 
of  silver  will  not  buy  as  much  by  twenty  per  cent. 
This  is  nothing  less  than  a  fact.  Those  who  insist 
on  theorizing  about  it  as  if  it  might  be  determined 
by  an  evolution  of  the  inward  consciousness,  must  be 
left  to  their  own  visions.  In  India,  where  silver  is 
the  exclusive  currency,  the  sudden  fall  has  been 
attended  with  the  ruin  of  commercial  houses,  pa- 
ralysis of  the  import  trade,  and  wide  and  bitter  dis- 
tress among  all  classes.  The  "  rupee,"  nominally 
worth  24  pence,  and  legal  tender  for  that  value,  has 
dropped  in  real  value  to  about  18  pence.  Moreover, 
your  thorough-going  silver  man  will  assert  the  same 
thing  with  the  very  breath  in  which  he  denies  it. 
**  Silver  is  plentiful,"  "  silver  is  cheap" — these  words 
mean  exactly  that  it  only  costs  eighty  cents  to  pro- 
duce the  silver  of  the  old  dollar. 

Now,  in  the  first  place,  suppose  we  had  been  on 
a  specie  basis  and  silver  had  not  been  demonetized. 
All  the  gold  money  would  have  been  driven  out, 
and  business  would  have  had  to  adjust  itself  as  best 


164  AN   ALPHABET   IN   FINANCE. 

it  could  to  the  enormously  reduced  measure*  And 
what  does  such  an  adjustment  mean  ?  Chaos — a 
revolution  in  trade — a  rapid  but  uneven  rise  in 
prices — which  throws  business  skill  and  prudence 
and  honesty  to  the  winds,  makes  gambling  and 
trickery  the  highway  to  wealth,  sweeps  the  hard  sav- 
ings of  toil  into  the  coffers  of  capitalists,  plunges  the 
w^hole  people  into  a  madness  of  riotous  living,  and 
taxes  labor  at  last  to  pay  the  cost  of  the  debauch. 
How  often  must  the  lesson  be  taught  ?  It  is  written 
on  many  a  black  page  in  the  history  of  the  nations, 
and  yet  we  do  not  learn  it :  no,  not  even  when  we 
read  it  over  and  over  in  the  records  of  our  own  land 
— not  even  when  it  is  scored  upon  our  very  backs 
by  the  burning  lash  of  experience  ! 

But  the  conditions  here  supposed  were  not  given. 
Excepting  the  demonetizing  of  silver,  they  were  far 
worse.  This  point  will  presently  offer  itself  for  con- 
sideration, but  it  is  enough  now  if  we  see,  that  sup- 
posing specie  conditions,  the  act  of  1873  was  an  act 
of  salvation.  We  pass  to  the  consideration  of  the 
present  issue. 

Cunningly  or  ignorantly,  the  question  is  usually 
stated  as  if  it  were  a  mere  question  of  a  return  to 
the  double  standard.  **  Business  is  prostrate,"  say 
the  champions  of  the  Dollar  of  our  Fathers,  "  because 


THE    SILVER    SCHEME.  1 65 

money  is  scarce,  and  money  is  scarce  because  it  is 
made  solely  of  gold,  and  gold  is  exceedingly  hard  to 
get.  But  silver  is  plentiful  and  easy  to  procure. 
Return  to  the  double  standard,  make  money  once 
more  of  silver,  and  we  can  readily  resume  specie 
payments,  clear  off  the  national  debt  and  set  the 
wheels  of  trade  humming  with  prosperity  and  joy." 

But  what  is  a  double  standard  ?  Theoretically  it 
is  a  compensatory  standard,  where  the  values  of  the 
two  units  are  brought  closely  to  an  equality.  It 
would  be  an  absurdity  to  set  up  a  double  standard 
for  a  foot,  where  a  measure  made  of  a  brass  rod 
would  show  twelve  inches,  and  a  measure  made  of  a 
steel  rod  would  show  eight  inches.  But  it  might  be 
rational  to  use  together  a  brass  rod  and  a  steel  rod,  as 
in  the  compensatory  pendulum,  their  lengths  being 
as  nearly  as  possible  the  same,  and  the  tendency  of 
each  to  expansion  and  contraction  being  expected  to 
resist  and  offset  the  tendency  of  the  other.  To  set  up 
a  double  monetary  standard,  it  is  necessary  to  fix  the 
units  as  nearly  as  possible  at  the  same  value.  If  the 
United  States  wishes  to  return  to  the  double  stand- 
ard of  gold  and  silver,  it  must  solve  the  problem 
afresh.  How  much  silver  is  equal  in  value  to  25.8 
grains  of  gold,  ^V  fi^^^  ?  And  as  we  have  seen,  the  an- 
swer is,  About  515  grains.    To  return  honestly  to  the 


l66  AN    ALPHABET   IN   FINANCE. 

double  standard— to  return  at  all — the  silver  "  dollar  ' 
must  be  coined,  not  of  412J  grains,  but  of  515  grains 
But  how  would  this  change  the  present  financial 
situation  ?  Leaving  out  the  consideration  of  inevi- 
table fluctuations  in  silver  which  would  destroy  the 
double  standard  almost  before  it  was  established,  it 
is  evident  that  it  would  not  better  matters  by  a  jot. 
A  silver  dollar  worth  as  much  as  a  gold  dollar  would 
be  superior  to  the  greenback  in  exactly  the  same 
proportion,  and  the  dollars  of  both  metals  would  flow 
away  till  the  present  level  of  specie  was  reached 
again.  Money  would  be  as  "  scarce  "  as  ever,  and 
statesmen  would  make  the  discovery  that,  even  add- 
ing the  silver  to  the  gold,  "  there  is  not  enough 
[precious  metal]  in  the  world  to  effect  the  world's 
exchanges."  An  honest  return  to  the  double  standard 
would  leave  us  precisely  where  we  stand  now ;  a  de- 
preciated currency  holding  the  channels  against  all 
assaults  of  superior  money.  And  it  looks  as  if  the 
advocates  of  the  silver  scheme  know  it  right  well,  for 
what  they  clamor  for  is  not  an  honest  silver  dollar, 
but  for  the  dollar  discarded  forty  years  ago,  for  the 
dollar  which  no  man  thought  of  using  until  the  dis- 
covery was  made  that  it  might  be  converted  by  the 
trick  of  an  act  of  Congress  into  an  instrument  of 
legal  fraud. 


THE    SILVER    SCHEME.  1 67 

The  consequences  which  would  follow  the  estab- 
lishment of  eighty  cents*  worth  of  silver  as  the  legal 
dollar  can  only  be  forecast  in  general  terms.  The 
situation  is  not  the  simple  one  it  would  be  under  a 
specie  basis.  We  know  that  the  results  would  be 
disastrous  in  the  extreme,  but  the  whole  extent  of 
disaster  or  the  precise  working  of  the  conflicting  in- 
fluences, no  human  thought  can  foretell.  We  shall 
perhaps  gain  the  clearest  understanding  of  the  mat- 
ter by  taking  separate  account  of  the  main  causes 
which  will  be  set  at  work  confusedly  together.  Let 
it  be  held  clearly  in  mind  that  a  change  in  the  legal 
measure  of  value  signifies  a  change  in  the  prices  of 
goods.  "  Price  "  only  means  the  ratio  of  exchange 
between  goods  and  money.  And  no  such  change, 
accomplished  suddenly  by  causes  entirely  foreign  to 
industry,  to  cost  of  production,  can  possibly  take 
place  without  so  falsifying  the  ratio  of  exchange  as 
to  rob  the  many  and  enrich  the  few.  The  failure  to 
cling  to  this  simple  fact  is  the  great  reason  for  the 
popular  indifference  respecting  the  money  question  ; 
*'  a  dollar  is  a  dollar  "  is  the  general  easy  phrase,  the 
real  truth  being  utterly  overlooked,  that  one  **  dollar  " 
may  be  beef-steak  four  times  a  week  and  another 
"  dollar  "  nothing  better  than  codfish  on  Friday. 

Some  of  the  causes  and  effects  which  are  involved 


1 68  AN   ALPHABET   IN   FINANCE. 

in  the  canying  out  of  the  silver  scheme  may  be  thus 
enumerated : — we  use  the  word  *'  cent  "  to  signify 
the  hundredth  part  of  a  gold  dollar.  It  is  necessary 
to  have  some  measure  : — 

1.  Trade  is  now  adjusted,  though  unevenly  ad- 
justed, to  the  standard  of  the  greenback.  Prices, 
that  is,  are  figured  on  a  basis  of  about  ninety  cents 
on  the  dollar.  The  standard  is  to  be  lowered  to 
eighty  cents.    Prices  must  be  tossed  up  in  proportion. 

2.  The  eighty  cent  silver  dollar  becoming  a 
standard  unit  on  a  legal  par  with  gold,  the  gold  dol- 
lar will  be  driven  out  entirely.  The  silver  dollar  will 
be  the  coin  in  which  the  greenback  is  to  be  paid. 
But  if  the  greenback  is  ultimately  to  be  redeemed  at 
eighty  cents,  its  value  will  be  figured  on  that  eighty 
cents.  That  is,  it  is  now  depreciated,  because  of  ex- 
cessive issue,  ten  per  cent.  With  the  silver  dollar 
for  the  base,  the  ten  per  cent  becomes  ten  per  cent 
of  eighty  cents.  The  greenback,  from  this  cause,  will 
fall  to  seventy-two  cents.  Prices  must  be  tossed  up 
to  this  degree. 

3.  The  greenback  falling  to  seventy-two  cents, 
it  will  become  an  inferior  currency,  and  the  eighty 
cent  silver  dollar  will  be  driven  out  of  circulation, 
except  for  custom-house  duties  and  interest  on  the 
national  debt.     Money  will  be  "  scarce." 


THE    SILVER    SCHEME.  1 69 

4.  But  the  paper  notes  now  in  circulation  include 
about  $370,000,000  greenbacks,  and  $290,000,000 
National  Bank  notes — say,  together,  $650,000,000. 
It  is  not  proposed  to  withdraw  the  greenbacks  nor 
take  away  their  legal  tender  quality.  The  National 
Bank  notes  will  remain  as  now  redeemable  in  the 
greenback,  and  possessing  the  same  value  in  trade. 
This  $650,000,000  now  suffices  for  the  business  of 
the  country,  each  note  standing  for  ninety  cents. 
But  each  note  is  to  be  reduced  to  seventy-two  cents. 
The  $650,000,000  will  not  be  enough,  therefore. 
Supposing  no  more  notes  to  be  issued  the  effect  will 
practically  be  contraction.  The  value  of  paper  will, 
from  this  counter-influence,  rise  toward  ninety  cents. 
Prices  will  fall.  The  industries  of  the  country  will 
be  '*  strangled,"  we  shall  be  delivered  captive  to  the 
"  money  power." 

5.  But  on  a  movement  of  rising  prices,  this  prac- 
tical contraction  will  not  be  submitted  to.  The 
distressed  traders  and  manufacturers  will  cry  for 
"  more  money,"  and  if  Congress  does  not  give  it  to 
them,  the  National  Banks  will.  The  fact  that  the 
National  Banks  contributed  to  inflation  and  may  so 
contribute  again  is  continually  lost  sight  of.  There 
is  no  practical  restriction  now  to  their  issues  except 
the  public  desire.     The  $354,000,000  limit  has  been 

8 


I/O'  AN    ALPHABET   IN   FINANCE. 

removed,  even  thd  requirement  of  reserves  has  been 
amended  so  that  a  five  per  cent  deposit  at  Washing, 
ton  is  all  that  is  necessary.  A  National  Bank  note 
is  redeemable  on  demand  in  *'  lawful  money  ;  "  but 
it  is  to  the  interest  of  nobody  in  particular  to  ask  a 
greenback  for  a  note  just  as  good.  How  far  the 
National  Banks  might  inflate  under  another  fictitious 
rise  of  prices  cannot  be  foreseen.  But  it  is  not  likely 
that  in  the  event  of  the  establishment  of  the  eighty- 
cent  dollar,  the  Congressmen  who  perpetrated  the 
folly,  or  the  iniquity,  will  be  wise  enough,  or  honest 
enough,  to  resist  a  demand  for  fresh  issues  of  paper. 
Thus  we  reach  a  probability  (amply  illustrated  in 
history)  that  a  new  paper  inflation  will  be  started 
whose  end  is  beyond  thought.  The  common  con- 
clusion of  such  a  course  is  repudiation.  And  mean- 
time, prices  will  be  violently  running  up  and  down 
the  scale  in  response  to  the  movements  of  inflation 
and  of  the  fluctuating  silver  base,  property  will  be 
changing  owners  without  returns  of  value,  the  sud- 
denly rich  will  waste  the  substance  of  the  country, 
we  shall  have  a  new  period  of  prodigality,  closed  by 
a  black  day  of  settlement,  and  followed  by  a  time  of 
prostration. 

6.  The  declaration  that  eighty  cents  worth  of  sil- 
ver is  to  be  henceforth  the  legal  United  States  dollar 


THE    SILVER    SCHEME.  17I 

will  break  down  the  national  credit.  The  bonds 
held  abroad  will  be  rushed  into  the  American  mar- 
ket in  a  flood,  not  only  because  of  the  dishonesty  of 
the  act,  but  because  such  dishonesty  makes  threat  of 
further  dishonesty  and  of  ultimate  repudiation. 

And  here  we  may  pause.  We  shall  only  exhaust 
our  patience  with  further  study.  The  proposition  of 
the  Bland  silver  bill — by  which  the  owners  of  silver 
were  not  to  be  held  from  the  spoil  while  the  mint 
slowly  coined  their  bullion,  but  were  to  be  suffered 
to  rush  into  the  market  at  once  with  buUion  certifi- 
cates, to  swindle  the  people  with  their  eighty  cent 
**  dollars  '*  before  prices  had  a  chance  to  settle — this 
and  other  matters  might  be  discussed  with  profit. 
But  is  it  not  enough  ?  Even  the  mere  glance  at  the 
salient  features  declares  the  silver  scheme  to  be  the 
most  illusory  or  the  most  audacious  that  ever  was 
concocted  for  the  enrichment  of  a  ring  and  the  ruin 
of  the  mass.  It  may  be  that  the  bonanza  statesmen 
are  not  fully  aware  of  the  import  of  their  proposition. 
But  most  of  what  is  known  in  plain  Saxon  as  robbery 
is  the  fruit  of  ignorance  and  an  impetuous  desire  for 
gain. 


CHAPTER   XXVIII. 


RESUMPTION. 


UCH  that  is  ably  written  and  spoken  on  the 
resumption  question  fails  almost  completely 
of  effect,  for  the  reason  that  it  is  vague 
where  it  should  be  definite,  and  rhetorically 
general  where  it  should  be  prosaically  particular. 
There  is  a  deal  of  truth  in  the  common  remark  that 
**  Every  body  says  we  ought  to  resume,  but  nobody 
tells  us  how  to  do  it."  Excellent  reason  there  may 
be  for  a  certain  caution  in  proposing  plans ;  for  the 
problem  is  one  of  many  parts,  and  its  successful 
working  out  will  proceed  on  numerous  and  changeful 
conditions.  But  aside  from  this,  the  matter  is  en- 
veloped in  the  general  haze  which  surrounds  the 
whole  subject  of  money,  and  it  has  come  to  pass  that 
multitudes  think  that  nobody  knows  anything  about 
it,  that  any  measure  regarding  it  is  as  likely  to  prove 
harmful  as  helpful,  and  that  the  safest  thing  to  do  is 
to  do  nothing,  but  simply  wait  till  the  snarl  unravels 
of  itself.     And  this  is  a  misfortune  of  weighty  con- 


RE  SUMP  TION.  1 73 

sequence.  Its  fruit  has  already  been ^  seen  in  this 
opening  presidential  campaign  of  1876,  in  the  ease 
with  which  political  jugglers,  in  the  space  of  a  few 
weeks,  diverted  popular  attention  from  what  every- 
body knew  and  felt  were  the  live  issues,  and  reinsti- 
tuted  the  everlasting  .sham-fight  over  the  "  party 
principles  "  of  honesty,  purity  and  truth,  respecting 
which  men  never  had  the  shadow  of  a  difference  of 
opinion.  "  We  must  reform."  Certainly  ;  but  what  ? 
and  how  ?  Surely  the  depreciated  currency,  which 
has  been  one  of  the  most  potent  instruments  in  over- 
whelming us  with  material  catastrophe  ;  which  has, 
by  its  evil  confounding  of  legal  right  with  moral 
right,  been  distilling  most  subtle  poison  into  public 
and  private  morals  ;  which  sits  now  like  a  nightmare 
upon  the  groaning  chest  of  industry — surely  if  we 
are  to  reform,  here  is  a  fit  place  to  begin.  But  those 
who  should  have  been  the  people's  leaders  did  not, 
dared  not,  or  could  not  say,  squarely  and  definitely, 
this  must  be  done,  or  that  must  be  done  ;  and  while 
they  parleyed  the  demagogues  and  tne  schemers 
industriously  and  plausibly  preached  what  ought  to 
be  a  most  palpable  lie — that  men  wait  till  they  are 
prosperous  before  they  pay  their  debts,  and  that  just 
so  a  nation  must  wait  until  wealth  flows  in  upon  it 
before  it  can  resume.     Honest  men  pay  their  debts 


174  AN   ALPHABET   IN   FINANCE 

when  they  fall  due.  At  least  they  spare  no  cost 
and  stop  at  no  sacrifice,  to  meet  their  obliga- 
tions ;  because  they  count  this  the  only  honorable 
dealing,  and  because,  also,  they  know  that  this  up- 
rightness is  the  only  road  to  a  prosperity  that  will 
endure.  A  nation  may  for  a  time,  because  of  its 
impersonal  character,  violate  the  law  of  right  without 
being  made  sensible  of  the  penalty  ;  but  the  punish- 
ment visits  it  all  the  same,  its  effects  the  more  cor- 
roding from  the  secrecy  of  its  operation,  and  finally, 
perhaps,  declares  itself  in  a  national  day  of  judg- 
ment. 

But  the  purpose  of  these  papers  admits  of  no 
more  than  allusion  to  the  moral  aspects  of  the  sub- 
ject. It  must  be  assumed  that  we  are  all  seeking 
the  right.  And  just  now  our  object  is  to  obtain  a  clear 
and  definite  understanding  of  the  things  submitted 
to  our  moral  sense.  A  comprehension  of  the  things 
already  discussed  in  these  pages  gives  us  the  key  to 
the  situation.  We  know  that  the  existence  of  the 
legal  tender  notes,  bills  past  due  from  the  moment  the. 
United  States  was  able  to  redeem  them,  is  a  wrong. 
We  know  that  if  the  debt  covered  by  them  cannot 
be  paid  outright  and  at  once,  the  holders  should  re- 
ceive interest  on  the  loan ;  and  so  we  know  that  the 
cutting  off  of  the  original  privilege  of  exchanging 


RESUMPTION,  175 

these  evidences  of  a  forced  loan  for  interest-bearing 
bonds  was  a  wrong.  Above  all  we  know  that  the 
presence  of  a  depreciated  currency  in  the  channels  of 
trade  a  day  longer  than  it  can  be  safely  removed  is  a 
national  crime.  A  false  measure  of  value  is  worse 
than  any  other  false  measure,  an  incalculably  greater 
instrument  for  defrauding  the  ignorant  and  the  de- 
fenseless than  false  pounds  or  false  yards  or  false 
bushels.  It  makes  trade  in  itself  a  cheat,  and  not 
even  the  strictest  honesty  can  prevent  injustice.  The 
one  thing  certain  about  its  action  is  that  it  places  the 
heaviest  burdens  on  the  weakest  shoulders.  We 
know  all  these  things,  we  feel  them  all  keenly — but 
nevertheless,  what  shall  we  do  ? 

Let  us  see  whether  we  cannot  find  out  something 
definite  about  resumption  and  the  cost  of  it.  We 
may  be  sure  that  it  will  cost.  And  the  company  of 
newspaper  writers  and  stump  speakers  who  whine 
over  this  feature  of  what  they  call  "  forced  resump- 
tion "  (as  if  there  could  be  some  other  kind  of  re- 
sumption) ought  to  be  locked  up  in  a  sort  of  moral 
nursery  at  once.  The  only  way  to  pay  debts  is  to 
pay  them,  and  paying  is  not  so  easy  as  not  paying. 
The  only  way  to  get  out  of  a  ditch  is  to  climb  out, 
and  it  takes  more  nerve  to  climb  than  to  sink  deeper 
and  deeper  in  the  mire. 


176  AN  ALPHABET  IN  FINANCE, 

The  question  of  resumption  is  usually  stated  as  if 
it  were  merely,  Can  the  United  States  begin  the  re- 
demption of  its  legal  tenders  in  1879?  ^"^  that  is 
not  the  question  at  all.  There  are  two  ways  to  such 
redemption.  It  would  be  equitable  to  put  the  hold- 
ers of  the  notes,  if  they  were  thus  satisfied,  in  position 
to  receive  interest  on  their  loan  :  that  is,  to  give  an 
interest-bearing  bond  for  the  legal  tender.  All  the 
legal  tenders  might  be  thus  funded  according  to  the 
original  intent,  before  the  day  for  coin  payment  ar- 
rived. And  then  the  question  would  become :  Can 
the  United  States  pay  interest  on  a  new  debt  of 
$370,000,000.  Everybody  knows  that  it  can ;  nor 
does  the  lachrymose  statement  that  it  will  be  expen- 
sive alter  the  fact.  But  again,  let  the  problem  be  the 
accumulation  of  a  store  of  gold  and  suppose  the  store 
necessary  to  be  $370,000,000 — which  is  not  the  fact. 
Now  we  strike  a  mass  of  notional  rubbish  indeed. 
If  we  should  ask  whether  the  United  States  can  in 
two  years  buy  up  that  value  of  ordinary  merchandise 
the  surprised  answer  would  be,  certainly  if  it  will  pay 
the  price.  But,  gold  : — Impossible  !  England  uses 
— a  certain  digit  with  so  many  naughts  attached  ; 
Germany  requires — another  digit,  with  so  many 
naughts  attached  ;  the  entire  Occident  employs,  "  in 
round  numbers  " — a  very  fat  digit  with  a  regiment 


RE  SUMP  TION,  1 77 

of  naughts  in  train  ;  the  annual  production  is  this, 
and  the  annual  draft  that.  And  so  what  is  there  left 
for  the  poor  United  States?  And  having  triumph- 
antly proven  that  there  is  none  to  be  had,  the  learned 
statistician  goes  on  to  show  that  foreigners  will  sell 
us  all  we  want,  by  picturing  the  frightful  disasters 
which  will  whelm  the  ''  money  centres  of  Europe  " 
when  the  wretched  proprietors  of  those  centres  have 
bartered  away  the  basis  of  their  "  toppHng  super- 
structures of  credit." 

It  is  amazing  that  such  stuff  can  be  uttered  in  an 
intelligent  community.  The  Occident  uses  all  the 
gold  it  has.  Of  course  it  does.  What  else  would  it 
do  with  it  ?  Throw  it  away  ?  bury  it  ?  burn  it  up  ? 
Our  statistician's  figures  might  be  doubled  and 
trebled,  and  the  Occident  would  employ  all  its  gold 
still.  Gold  would  be  cheaper  in  the  Occident  than 
now  :  people  would  have  more  jewelry,  more  dental 
work,  more  gold-lettered  sign  boards,  more  **  money." 
But  the  money  would  not  have  the  purchasing  power 
i^t  has  now — any  more  than  the  jewelry  or  the  gold 
lettering.  '*  Prices  "  would  be  higher;  it  would  take 
a  smaller  amount  of  iron,  or  cotton,  or  wheat  to  buy 
any  given  weight  of  gold.  And  the  United  States 
might  wait  till  the  crack  of  doom — it  would  never  be 
able  to  get  any  gold  from  abroad  nor  to  hold  its  own, 
8* 


178  AN  ALPHABET   IN   FINANCE. 

until  it  was  ready  to  pay  as  much  for  it  as  was  paid 
elsewhere.  If  the  United  States  wants  to  buy  gold 
enough  to  make  370,000,000  gold  *'  dollars,"  it  must 
simply  buy  it.  The  "  money  centres  in  Europe  "  are 
amply  able  to  take  care  of  themselves.  They  need 
not  give  us  a  single  stone  from  the  foundation  of  their 
"toppling  superstructures."  The  gold  might  reach 
us  by  way  of  England  or  Germany,  or  Spain,  but  it 
would  be  drawn  from  that  part  of  the  world  where  it 
was  least  valuable.  The  consequence  of  the  with- 
drawal would  be  a  rise  in  the  value  of  the  remaining 
gold  ;  that  is,  a  fall  in  general  prices.  But  the  with- 
drawal being  from  the  whole  commercial  world,  the 
fall  in  prices  would  be  so  widely  distributed  as  to 
cause  no  appreciable  disturbance.  Thus  the  ques- 
tion as  to  the  purchase  of  a  quantity  of  gold  sufficient 
to  make  370,000,000  dollar  pieces,  is  the  question 
simply,  Can  the  United  States  pay  the  price,  or 
secure  payment  to  the  sellers  ?  But  there  is  no 
question  here,  except  that  of  the  rate  of  interest -we 
are  willing  to  pay  for  a  loan.  It  seems  that  our 
new  4|  per  cent  bonds  will  go  off  readily  enough. 
But  if  they  did  not,  we  might  better  pay  ten  per 
cent,  than  lose  millions  every  month  and  every  year 
through  enforced  idleness  and  unproductive  con- 
sumption. 


RE  SUMP  TION.  1 79 

The  United  States  can  get  all  the  gold  it  wants 
when  it  is  ready  to  pay  the  price,  and  it  can  pay  the 
price  when  it  resolves  to  do  so.  The  real  difficulties 
are  not  in  this  direction ;  and  it  is  because  every 
man  feels  that  this  is  so,  whether  he  has  deliberately 
thought  it  or  not,  that  the  most  elaborate  demon- 
strations in  this  line  of  the  possibility  of  resumption, 
produce  so  trivial  an  effect.  "  How  is  it  all  going  to 
affect  me  ?  " — that  is  the  anxious  inquiry.  The 
question  is  not,  Can  the  Unit>ed  States  government 
resume  ?  but,  Can  the  business  of  the  country  with- 
stand the  shock  of  a  return  to  the  specie  basis  ?  A 
matter  of  paying  four  per  cent,  five  per  cent,  or  six 
per  cent  interest  on  $37o,cxx),ooo  is  a  comparatively 
small  affair ;  but  a  change  of  the  trade  measure  of 
value  from  ninety  cents  to  a  hundred  cents — a  gen- 
eral forced  fall  of  prices  of  from  ten  to  fifteen  per 
cent — this  is  something  of  very  serious  moment. 
No  wonder  that  manufacturers  pause,  that  merchants 
hesitate,  that  men  of  every  calling  fear  to  go  on, 
when  they  see  this  threat  of  disaster  rise  before  them 
in  cloudy  outline,  and  the  financiers,  the  interpreters 
of  the  giant  movements  of  trade,  the  Wall  street 
sages  and  the  Washington  statesmen  affect  not  to 
know  it  is  there,  or  only  acknowledge  its  presence 
with  a  shrug.     Specie  resumption  means  a  new  dis- 


l8o  AN  ALPHABET  IN  FINANCE. 

turbance  of  prices,  when  already  the  tossings  and 
shakings  of  the  ratios  of  exchange  have  broken  thou- 
sands of  fortunes,  and  crippled  thousands  more  with 
crushing  losses  which  never  have  found  place  on  the 
public  records.  Here,  then,  is  the  real  matter  for 
examination,  and  no  sober  and  prudent  man  can  be 
satisfied  by  a  mere  allusion  to  it,  or  a  general  wave 
of  the  thumb  over  the  shoulder. 

Resumption  means  a  return  to  the  specie  basis. 
And  a  return  to  the  specie  basis  is  not  achieved 
when  the  government  has  massed  a  treasure  of  gold, 
but  when  gold  dollars  are  circulating  as  money  in 
the  trade  channels.  The  question  is.  How  are  these 
gold  dollars  to  be  substituted  for  these  paper  prom- 
ises of  dollars  as  measurers  of  value  ?  What  will  be 
the  result  of  adjusting  prices  to  the  new  scale  ?  Is 
there  any  way  of  mitigating  the  loss  and  injustice 
which  a  change  of  the  value-measure  seems  to  make 
inevitable  ? 

The  overshadowing  consideration  is  that  of  the 
change  of  values,  i.e.,  the  fall  of  prices.  Let  us  make 
sure  that  we  hold  distinctly  in  mind  what  **  value  "  is 
and  what  "  price  "  is,  for  clear  ideas  on  these  things 
furnish  the  key  to  the  most  difficult  parts  of  the 
problem  ;  and  not  only  that,  but  could  such  ideas 
be  disseminated  broadly  among  the  people  and  not 


RE  SUMP  TION.  1 8 1 

be  suffered  to  remain  the  possession  of  a  few,  they 
would  aid  incalculably  in  preserving  order  and  equity 
and  justice  in  the  inevitable  period  of  trade  revolu- 
tion. A  commodity  in  trade  has  no  "  value  "  except 
as  it  is  exchangeable  for  some  other  commodity 
and  the  degree  of  its  value  is  determined  by  its  ratio 
of  exchange  with  that  other  commodity.  A  hat  is 
valued  at  fifty  loaves  of  bread  when  it  can  be  ex- 
changed for  fifty  loaves  of  bread.  Value  is  expressed 
as  a  ratio  of  exchange.  And  **  price  "  is  simply  this 
ratio  of  exchange  expressed  in  money.  Evidently, 
therefore,  the  "  prices  "  of  commodities  might  be 
changed  infinitely  without  affecting  their  "values" 
with  reference  one  to  another  in  the  least.  Thus,  if 
the  "  price  "  of  a  hat  is  five  dollars,  and  of  a  loaf  of 
bread  ten  cents,  then  the  value  of  the  hat  with  refer- 
ence to  bread  is  fifty  loaves.  Suppose  a  general  rise 
of  "  prices  " — let  the  hat  be  worth  twenty-five  dollars 
and  a  loaf  of  bread  fifty  cents.  The  value  of  the  hat 
with  reference  to  the  bread  is  just  fifty  loaves  as 
before.  This  is  all  as  simple  as  A,  B,  C,  of  course, 
but  very  few  consider  what  it  means.  It  illustrates 
a  fundamental  factor  in  our  problem.  We  are  asking 
what  will  be  the  effect  of  a  general  reduction  of 
"  prices,"  and  the  vague  reply  of  thousands,  "  Loss 
and  ruin,"  is  in  no  sense  satisfying.     But  we  need 


l82     ^  AN  ALPHABET  IN  FINANCE. 

not  stop  with  such  cloudy  answers.  A  change  of 
**  prices  "  means  a  change  in  the  value  of  money, 
but  apart  from  that,  if  the  "  prices  "  of  every  valua- 
ble possession  could  be  reduced  instantly,  simulta- 
neously, and  in  like  proportion,  there  would  be  no 
real  change  at  all.  Everybody  would  get  exactly  the 
same  value — the  same  amount  of  bread,  meat,  cloth- 
ing and  shelter — for  his  goods  and  his  labor  as  before. 
The  values  of  all  these  things,  with  reference  each  to 
each,  would  only  be  differently  expressed.  But  here 
would  be  the  mischief  of  such  a  change :  that  multi- 
tudes would  be  caught  with  contracts  on  their  hands 
to  pay  specific  sums  of  money.  Thus  a  merchant 
might  have  goods  in  his  store  valued  at  $55,000  and 
might  owe  $50,000.  A  raising  of  the  standard  of 
value  would  cut  down  the  prices  of  his  goods  but 
would  not  reduce  the  figures  of  his  liabilities  :  a 
change  of  ten  per  cent  would  wipe  out  his  $5,000 
capital  and  leave  him  $500  in  debt. 

We  are  thus  getting  at  something  tangible.  Let 
us  take  a  step  further.  The  conditions  here  supposed 
would  not  be  found  in  fact.  The  measure  of  value 
might  legally  be  changed  on  the  instant,  but  it 
would  take  a  long  time  for  the  change  to  be  intro- 
duced in  practice.  The  fall  of  prices  would  neither 
be  simultaneous  nor  proportional.     Bread  might  re- 


RESUMPTION.  183 

main  at  ten  cents,  and  hats  go  to  $4.50 — or  perhaps 
lower  to  bring  out  the  average  of  reduction.  Differ- 
ent commodities  would  respond  to  the  pressure  at 
different  times,  the  ratios  of  exchange  would  be 
fictitiously  altered,  and  some  people  would  lose  and 
others  gain.  Money  contracts  would  remain  fixed 
nominally  as  before ;  notes  would  have  to  be  met 
according  to  the  figures,  mortgages  paid  by  the  letter 
of  the  bond  ;  but  all  other  values  would  be  subjected 
to  uneven  and  therefore  false  disturbances.  In  a 
word,  just  that  kind  of  harm  and  injustice  would  be 
worked  as  was  worked  by  the  inflation  of  the  paper 
circulation  and  the  consequent  lowering  of  the  stand- 
ard of  value.  There  would  be  no  real  difference  in 
the  nature  of  the  losses  ;  but,  broadly  speaking,  they 
would  be  put  on  those  who  sell,  not  on  those  who 
buy,  and  on  those  who  owe  money,  not  on  those  to 
whom  money  is  due.  The  process  of  wrong  and 
loss  would  be  reversed.  Could  the  same  merchant 
who  gained  by  the  rise  of  prices  when  we  ballooned 
away  from  gold  be  made  to  bear  the  loss  from  the 
fall  of  prices  when  we  return  to  gold ;  could  the 
widow  who  was  then  cheated  of  half  her  substance  in 
the  savings'  bank  now  have  the  gain  on  a  similar 
money  contract,  there  would  be  a  sort  of  compensa- 
tion in  the  new  adjustment.     &^^®^^^^&lj»this 


OB* 


1 84  AN   ALPHABET   127   FINANCE. 

cannot  be  the  case.  The  relations  of  debtor  and 
creditor  are  changing  constantly,  and  some  have 
more  fortune  or  more  foresight  or  more  power  than 
others  in  preparing  to  meet  an  alteration  of  the 
value-measure.  The  merchant  is  not  willing,  and  the 
widow  is  not  able,  to  take  up  a  position  where  the 
change  will  produce  a  poetic  equity.  The  injustice 
resulting  from  the  raising  of  the  standard  must  be 
out  of  all  proportion  to  the  reparation  for  past 
wrong. 

And  now  we  have  something  as  definite  and  clear 
in  this  direction  as  need  be.  Our  own  experience  of 
the  evils  of  false  fluctuations  in  values  will  make  all 
more  sharply  plain  than  any  words.  Yet  we  must 
not  permit  imagination  to  run  away  with  reasoning 
power  on  this  subject.  The  means  employed  in 
bringing  about  the  change  will  have  very  much  to  do 
with  the  practical  character  and  extent  of  the  effects. 
We  want  to  ask,  therefore,  of  the  method  by  which 
the  gold  dollar  is  to  be  re-instated  as  the  trade 
measure  of  value.  And  thus  we  come  to  the  appli- 
cation of  those  great  laws  of  trade  in  relation  to 
money  which  it  has  been  the  purpose  of  the  previous 
chapters  to  develop. 

We  know  in  the  first  place  that  gold  can  only 
come  into  circulation  again  under  some  ordering  of 


RESUMPTION  185 

the  conditions  according  to  Gresham's  Law  (Chap. 
VIII).  So  long  as  a  depreciated  currency  stops  the 
way  the  superior  money  cannot  enter. 

At  the  risk  of  tediousness  we  pause  to  note  that 
the  wonderfully  common  idea  of  resumption  without 
contraction  is  a  pure  absurdity.  Should  the  govern- 
ment to-morrow  cut  off  its  receipts  of  greenbacks,  and 
begin  to  pay  out  gold,  every  dollar  of  the  metal 
would  be  exported.  So  also,  if  the  government 
should  begin  to-morrow  to  redeem  its  notes  in  gold, 
the  gold  would  flow  steadily  abroad  until  the  whole 
volume  of  the  currency  became  just  enough  for  the 
business  of  the  country  conducted  on  specie  prices. 
Gold  will  not  circulate  as  long  as  a  currency  worth 
less  than  gold  holds  the  channels.  And  there  are 
but  two  ways  of  overcoming  the  difficulty :  to  con- 
tract by  throwing  the  paper  out  altogether — that  is, 
to  repudiate ;  or,  to  contract  by  redeeming.  This 
latter  contraction  may  be  brought  about  violently  or 
by  moderate  steps,  but  to  talk  of  avoiding  it  is  only 
to  make  confession  of  dense  ignorance. 

The  volume  of  the  paper  currency  must  be  re- 
duced. But  the  simple  removal  of  a  portion  of  the 
notes,  without  the  application  of  any  further  govern- 
mental force  whatever,  will  be  followed  by  an  inflow 
of  gold  into  the  courses  of  trade.     This  being  so,  we 


1 86  AN   ALPHABET   IN   FINANCE. 

find  place  for  the  reflection  that  business  interests 
will  be  better  conserved  by  permitting  gold  to  enter 
on  trade  demand,  than  by  throwing  it  on  the  market 
violently  or  arbitrarily.  The  practical  application  of 
which  is,  that  the  gold  should  be  bought  directly 
with  the  goods  of  merchants  (by  which  method  trade 
values  will  be  brought  naturally  in  contact  with  the 
measure  of  value)  rather  than  purchased  by  the  sale 
of  government  securities.  When  we  lost  our  gold 
the  order  of  events  was,  inflation  of  the  currency,  rise 
of  home  prices,  selling  of  our  specie  for  foreign 
goods ;  if  we  are  to  get  back  our  gold,  the  order  most 
natural  and  therefore  least  harmful  will  be,  contrac- 
tion of  the  currency,  fall  of  home  prices,  buying  of  our 
specie  with  domestic  goods.  We  understand  clearly 
that  it  is  our  goods  at  last  which  must  pay  for  the 
gold  ;  it  is  better  that  they  should  be  given  for  it  di- 
rectly than  through  the  roundabout  road  of  taxation 
and  government  purchase.  And  moreover,  we  know 
that  if  the  removal  of  the  greenbacks  be  conducted 
gradually,  the  greenbacks  will  rise  gradually  to  par  ; 
and  a  gradual  alteration  of  the  measure  of  value,  a 
gradual  fall  of  prices,  which  is  clearly  foreseen,  gives 
the  trader  an  opportunity,  by  turning  his  goods  over 
and  over,  to  lessen  his  losses  on  his  outstanding 
obligations.     Thus  we  begin  to  see  that  there  may 


RESUMPTION,  187 

be  some  ways  of  at  least  mitigating  the  evils  of  a 
change  o^  the  value-measure. 

But  further.  Three  ways  for  the  honest  removal 
of  the  legal  tender  are  open  to  us: — (i)  They  may 
be  called  in  by  a  special  tax,  (2)  they  may  be  taken 
up  in  coin,  (3)  they  may  be  exchanged  for  interest- 
bearing  bonds. 

1.  However  admirable  the  first  method  may  be 
in  theory,  and  however  well  it  might  have  worked 
immediately  after  the  war  (when,  in  the  single  year 
of  1866,  the  people  submitted  to  a  taxation  of  $250, 
000,000  more  than  in  1876),  it  is  open  now  to  the 
practical  objection  that  the  heavy  burden  might  be 
felt  as  intolerable.  Only  two  years  are  given  in 
which  to  levy  the  tax.  The  simplicity  of  the  plan 
might  not  be  enough  to  assure  popular  support,  or 
compensate  for  the  lack  of  such  support.  Moreover, 
the  "  heroic  "  treatment  is  not  necessarily  the  best. 
The  present  generation  have  borne,  and  are  bearing, 
a  large  share  of  the  cost  of  the  war.  If  they  can 
transfer  a  part  to  the  generations  to  come,  it  may  be 
not  only  fair,  but  for  the  advantage  of  all. 

2.  There  are  serious  objections  to  the  second 
method,  except  as  it  maybe  followed  after  the  paper 
has  reached  par.  The  usual  proposition  is,  to  accu- 
mulate $100,000,000  in  gold  coin,  or  whatever  may 


1 88  AN  ALPHABET   IN   FINANCE. 

be  necessary  to  make  legal  tenders  convertible  on 
demand,  and  then  on  January  i,  1879,  throw  open 
the  doors  and  let  every  man  who  can  present  a  green- 
back do  it.  But  it  being  known  that  on  that  date 
greenbacks  would  suddenly  leap  to  par  unless  they 
rose  before,  they  would  begin  to  rise  previously. 
But  this  rise  would  not  be  a  natural  one.  The 
National  Banks,  indeed,  would  begin  to  withdraw 
their  notes  or  exact  higher  value  for  them,  and  this 
would  be  a  healthy  movement.  But  the  greenbacks 
would  be  contracted  by  the  efforts  of  more  or  less 
shrewd  or  foolish  people  who  would  accumulate  them 
to  reap  the  advance.  That  would  happen  which 
always  happens  in  such  a  case : — the  appreciating 
currency  would  be  "  hoarded,"  and  the  hoarding  of 
a  part  would  make  the  rest  rise  toward  par.  In 
other  words,  the  volume  of  the  currency  would  be 
reduced,  not  by  the  legitimate  influences  of  trade 
nor  by  the  regular  and  published  acts  of  the  govern- 
ment, but  by  speculation  in  its  least  calculable  form. 
But  this  would  mean  fluctuations  not  to  be  foreseen, 
nor  provided  for,  nor  mitigated.  Their  frequency 
and  violence  would  depend  on  states  of  mind,  and 
the  responsive  changes  of  prices  might  be  incalcula- 
bly uneven  and  unjust.  How  speedily  trade  would 
be  forced  to  the  specie  basis  no  one  can  tell.     It  is 


RESUMPTION.  189 

only  certain  that  the  great  revolution  would  be  con- 
summated a  considerable  time  before  the  day  set  for 
resumption.  The  removal  at  the  appointed  hour 
of  that  quantity  of  the  legal  tenders  which  represents 
inflation  would  be  sufficiently  easy,  because  they 
would  be  sent  in  in  bales  ;  but  the  real  pangs  of  re- 
sumption would  have  been  endured  long  before.  In 
brief,  the  plan  would  accomplish  the  main  purpose, 
but,  so  far  from  easing  off  the  process,  it  would  pre- 
cipitate the  hardships  of  contraction  and  substitute 
a  violent  and  spasmodic  constriction  for  a  steady 
and  regular  pressure. 

3.  The  method  of  funding  into  interest-bearing 
bonds  would  seem  to  be  the  most  wise  and  most 
natural  way  of  attaining  the  object.  The  govern- 
ment, by  the  issue  of  the  greenbacks,  forced  a  loan 
from  the  people  at  a  time  when  it  could  not  wait  to 
sell  its  ordinary  bonds.  It  now  repairs,  as  far  as  it 
can,  the  injury  and  injustice  of  the  measure,  by  offer- 
ing, in  exchange  for  the  indefinite  and  non-interest- 
bearing  paper,  bonds  which  yield  a  reasonable  inter- 
est and  which  name  a  day  for  the  final  return  of  the 
loan.  As  to  its  equity,  the  plan  seems  to  be  all  that 
can  be  demanded.  The  objection  that  the  green- 
back should  be  redeemed  in  gold  is  met  by  the 
consideration  that  the   greenback  is  really  a  bond: 


190  AlSr   ALPHABET   IN   FINANCE. 

pledging  the  government  to  pay  a  debt  when  it  can. 
By  exchanging  the  greenback-bond  for  an  interest- 
bearing  bond,  the  government  does  not  pay  the  debt, 
but  only  names  that  day  for  payment  which  seems 
best  for  the  sake  of  all,  and  meanwhile  agrees  to  give 
proper  interest.  When  it  finally  pays,  it  will  pay  in 
gold  according  to  the  original  terms.  Observe  that 
there  is  no  compulsion  in  the  exchange  of  the  green- 
backs for  the  bonds.  Resumption  is  not  "  forced  " 
in  this  sense.  Those  who  prefer  to  receive  gold  di- 
rectly have  but  to  wait  until  the  day  appointed  for 
resumption,  which  day,  certainly,  will  not  be  further 
postponed  by  the  funding  operation. 

The  necessary  reduction  of  the  volume  of  paper 
can  easily  be  effected  by  offering  for  the  greenbacks 
bonds  bearing  a  sufficient  interest ;  and  the  simple 
removal  of  a  sufficient  quantity  of  the  notes  will  raise 
the  standard  of  value,  bring  prices  to  the  specie 
level,  and  induce  an  inflow  of  gold.  Yet  before  we 
unqualifiedly  accept  the  plan,  let  us  be  sure  that  we 
know  how  it  is  intended  to  operate.  We  are  not 
simply  seeking  any  method  by  which  it  may  be  pos- 
sible to  reach  the  specie  basis  ;  we  are  seeking  the 
best  method.  The  funding  plan  is  very  little  under- 
stood in  its  details.  And  the  reason  for  misappre- 
hension seems  chiefly  to  be  the  common,  misleading, 


RESUMPTION.  191 

superficial  talk  about  the  "  money  market,"  and  the 
abundance  or  scarcity  of  "  money."  Just  now, 
"  money  is  a  drug,"  it  is  said ;  and  the  idea  is  con- 
veyed that  capitalists  find  themselves  obliged  to  stuff 
their  pillows  with  circulating  notes,  while  the  banks, 
perhaps,  stack  up  paper  like  hay  in  their  strong- 
rooms. Hence,  there  are  numerous  bond  schemes 
proposed  which  are  to  take  up  just  the  superfluity  of 
paper — as  one  journal  had  it,  to  "  absorb  the  spots 
and  splashes  of  money."  But  it  is  not  "  money  " 
which  is  plenty  or  scarce  ;  the  superfluity  of  paper  is 
continually  absorbed  by  prices.  When  prices  go 
down  under  some  tremendous  shock,  paper  for  a 
brief  time  may  be  superfluous ;  but  it  must  either  be 
withdrawn  or  be  speedily  taken  up  again  by  a  rise  in 
prices.  Just  now,  it  is  being  withdrawn  ;  the  Na- 
tional Banks  are  surrendering  their  notes.  We  re- 
peat, it  is  not  "  money  "  (neither  circulating  notes, 
nor  true  money). which  is  plenty  or  scarce  ;  nor  is  it 
"  money,"  except  in  temporary  crises,  which  rules 
the  rate  of  interest.  It  is  capital  offered  for  loan. 
Money  is  neither  borrowed  nor  lent  except  in  insig- 
nificant amounts  ;  purchasing  power  is  borrowed  and 
lent,  its  amount  being  expressed  in  terms  of  money. 
So  then,  a  plan  involving  the  offer  of  an  unlimited 
amount  of  bonds  in  the  faith  that  a  certain  low  rate 


192  AN   ALPHABET   IN   FINANCE, 

of  interest  would  absorb  only  the  "  spots  and 
splashes  "  of  paper,  might  work  out  in  a  way  more 
surprising  than  felicitous.  The  quantity  at  once  re- 
turned would  simply  be  lim.ited  on  the  one  side  by 
the  quantity  of  capital  seeking  safe  investment  and 
content  to  take  the  interest  offered,  and  on  the  other 
by  the  quickness  with  which  the  greenback  would 
rise  in  value  under  the  extraordinary  demand.  The 
effective  check  would  practical^  be  the  latter.  The 
funding  would  cease,  not  from  the  drying  up  of  the 
** spots  and  splashes"  but  from  the  increased  worth 
of  the  legal  tender.  The  very  purpose  of  the  plan- 
ners would  be  defeated.  Instead  of  a  gradual  retire- 
ment of  the  notes,  and  a  steady  upward  movement 
of  the  standard  of  value,  there  would  result  a  violent 
contraction  and  a  sudden  leap  toward  par. 

The  true  funding  plan  is  clearly  to  sell  the  bonds 
in  regular  and  legally  appointed  installments.  The 
sales  should  be  regular,  that  the  reduction  of  the 
paper  circulation  and  the  rise  of  the  standard  of  value 
may  be  steady.  The  installments  should  be  ap- 
pointed by  law  for  several  reasons  :  The  rate  of  paper 
retirement  should  be  settled  beyond  doubt,  not  left 
dependent  upon  any  man's  will ;  and  it  should  be 
certified  clearly  to  the  whole  people,  in  order  that 
they  may  know  just  what  to  expect,  as  to  the  change 


RESUMPTION,  193 

of  the  standard  of  value  and  of  the  scale  of  prices, 
and  may  order  their  business  accordingly.  Again, 
the  secretary  of  the  treasury,  be  he  never  so  wise, 
firm  or  prudent,  should  not  be  exposed  to  the  pres- 
sure which  will  certainly  seek  an  object  somewhere 
when  the  contraction  begins  to  be  felt.  He  should 
have  no  discretionary  power  upon  which  schemers, 
or  even  distressed  merchants,  can  operate.  **  The 
only  way  to  resume  is  to  resume,"  and  no  plan  can  be 
devised  which  will  not  hurt.  There  must  be  no 
more  steps  backward,  hke  that  in  1872,  when  the 
secretary  re-issued  $5,ooo,0(DO  of  the  $44,000,000 
which  had  been  previously  withdrawn.  And  finally, 
a  law,  once  passed  by  Congress  and  backed  by  an 
intelligent  public  opinion,  would  be  a  strong  defense 
against  Congressional  folly,  weakness  or  dishonesty. 
A  concentrated  effort  could  secure  such  legislation, 
and  a  project  of  repeal  would  marshal  the  whole 
country  against  the  small  body  which  might  demand 
it.  We  must  have  no  repetition  of  the  mistake  of 
1868,  when,  although  legitimate  business  was  pro- 
ceeding within  guarded  Hmits  and  under  the  expect- 
ation of  a  speedy  return  to  specie,  the  contraction 
which  was  being  accomplished  by  Secretary  McCul- 
loch  was  put  an  end  to  at  the  demand  of  a  few  who 


194  AN  ALPHABET  IN  FINANCE. 

found  in  expanding  credit  and  inflating  prices  the 
opportunity  of  speculative  gains.* 

Thus,  with  our  knowledge  of  the  laws  of  money 
and  the  guidance  of  our  own  bountiful  experience, 
we  are  enabled  to  mark  out  a  plan  for  resumption 
with  as  much  certainty  and  definiteness  as  can  be 
reasonably  asked  for.  The  main  feature  will  be  the 
reduction  of  the  volume  of  the  inflated  currency  by 
funding,  the  process  being  carried  on  under  such  pro- 
visions as  will  secure  regularity,  publicity  and  cer- 
tainty in  the  operation.  The  rate  of  funding  will  be 
such  that  the  amount  of  paper  which  it  is  necessary 
to  remove  (generally  estimated  at  $100,000,000)  will 
be  retired  before  the  date  fixed  for  resumption. 
Before  this  date,  therefore,  business  will  be  upon  a 

*  It  may  be  remarked  that  the  proposed  repeal  of  the  legal  tender 
act  would  certainly,  as  it  is  urged,  accelerate  funding  at  a  low  rate  of 
interest.  But  low  interest  is  a  minor  consideration,  and  it  must  not 
be  forgotten  that  the  notes  of  the  National  Banks  are  a  part  of  the  in- 
flated currency,  and  that  these  notes  are  now  convertible  on  demand 
into  legal  tender.  When,  therefore,  the  quality  of  legal  tender  is  taken 
from  the  greenback,  the  bank-notes  will  become  payable  on  demand 
in  gold.  Hence  the  repeal  of  the  legal  tender  act  before  the  govern- 
ment paper  had  reached  par,  would  compel  an  instant  contraction  of 
bank  issues — unless,  indeed,  the  National  Bank  notes  were  made 
legal  tender,  when  complications  would  arise  in  other  directions. 
Furthermore,  the  project  has  a  considerable  element  of  injustice  in  it. 
A.nd  finally,  such  a  proposition  would  divert  popular  attention  from 
the  main  line,  when  concentration  of  thought,  feeling  and  conviction 
is  a  supremely  important  matter. 


RESUMPTION.  195 

specie  basis,  and  the  inflow  of  gold  will  have  begun. 
Supplementary  to  the  main  measure  will  be  the 
accumulation  of  a  certain  store  of  gold, — enough  to 
maintain  the  convertibility  of  the  greenback  upon, 
and  after,  the  day  of  resumption,  and  enough  also  to 
secure  and  establish  confidence,  during  the  period 
of  contraction  and  waiting,  among  people  of  every 
degree  of  intelligence.  Moral  effect  is  an  especially 
important  consideration  when  popular  ideas  are  so 
confused.  The  appropriation  of  the  proceeds  of 
some  special  tax  might  be  useful  also,  in  further 
securing  regularity  in  contraction,  and  in  contributing 
to  the  gold  reserve. 

The  plan  will  certainly  accomplish  the  purpose. 
Supposing  it  to  be  adopted  and  the  work  going  on. 
The  legal  tenders  are  being  steadily  retired,  and  it  is 
certain  that  on  the  day  fixed,  every  note  outstand- 
ing will  be  worth  its  face  in  gold  and  convertible  into 
gold  on  demand.  What  then  ?  The  National  Banks 
will  contract  also,  nor  will  a  factitious  pressure  for 
*'  more  money  "  be  likely  to  tempt  them  into  expand- 
ing unduly.  Should,  however,  there  be  a  well  sus- 
tained demand,  it  will  be  responded  to,  and  safely, 
because  it  will  be  the  result,  not  of  a  flurry,  but  of  a 
legitimate  trade  development.  All  the  "  money  " 
required  for  "  the  wants  of  trade  '*  will  be  furnished, 


ig6  AN   ALPHABET   IN  FINANCE. 

because  the  banks  will  find  a  profit  in  furnishing  it 
But  the  continual  tendency  will  be  to  a  gradual  less- 
ening of  the  volume  of  the  currency  in  proportion  to 
the  amount  of  business, — a  gradual  reduction  of 
**  inflation,"  and  hence  to  a  gradual  rise  in  the  pur- 
chasing power  of  the  greenback,  and  a  gradual  fall 
in  prices.  The  contraction  will  be  so  timed  that  the 
greenback  will  be  at  par,  and  prices  at  the  gold 
level,  before  the  day  appointed  for  resumption.  But 
when  the  paper  is  at  par  it  will  no  longer  be  an  in- 
ferior currency,  and  will  no  longer  hinder  the  circu- 
lation of  gold.  And  here  will  enter  the  law  by 
which  prices  and  gold  act  and  re-act  upon  each 
other.  The  low  prices  will  encourage  the  export  of 
goods  and  the  import  of  specie ;  the  "  balance  of 
trade"  will  turn  "in  favor"  of  the  United  States; 
the  United  States  will  buy  back  again  with  its  mer- 
chandise, and  through  its  merchants,  the  gold  which 
it  sold  in  1862.  Gold  dollars  will  circulate  in  the 
ordinary  channels  of  business  as  measures  of  value. 
The  trade  of  the  country  will  have  "  resumed  " — and 
how  soon  thereafter  the  government  resumes  will  be 
a  matter  of  comparatively  slight  importance. 


CHAPTER  XXIX. 

RESUMPTION— THE  BRIGHTER  SIDE. 

N  the  previous  chapter  we  have  endeavored 
to  confront  squarely,  without  self-delusion 
but  without  exaggeration,  the  evils  of  the 
process  of  resumption.  We  see  that  a  cer- 
tain amount  of  loss  and  harm  is  inevitable.  There  is 
no  nostrum  which  can  effect  a  painless  cure.  Yet  we 
see  that  the  pictures  of  ruin  which  many  demagogues 
draw  are  for  most  part  the  product  of  diseased  or 
ignorant  imaginations.  We  see  also  that  there  is  a 
choice  of  plans,  and  that  the  plan  of  funding,  which 
on  the  whole  seems  most  natural,  most  closely  in  ac- 
cord with  the  loan  character  of  the  legal  tender  issue, 
will  very  greatly  reduce  the  hardships  and  perils  of 
the  resumption  process.  But  we  may  go  further  still. 
Every  serious  change  in  the  measure  of  value  causes 
loss  and  injustice,  but  a  change  from  a  certain  point 
of  depreciation  to  the  standard  cannot  be  nearly  as 
fruitful  of  wrong  as  was  the  change  from  the  stand- 
ard to  the  unknown  depths  of  depreciation.     The 


198  AN  ALPHABET  IN   FINANCE, 

deliberate  movement  from  a  legal  tender  worth 
ninety  cents  to  a  gold  dollar  worth  a  hundred  cents 
may  be  compared  to  the  laborious  ascent  of  a  ladder 
to  a  fixed  point ;  the  movement  the  other  way  was 
a  leap  from  a  height  in  the  dark.  A  return  to  the 
specie  standard,  on  the  funding  plan  as  here  lined 
out,  will  be  marked  with  these  mitigations,  besides 
many  others  of  greater  or  less  importance. 

1.  The  losses  will  not  be  disguised.  The  fiction 
that  "  a  dollar  is  a  dollar  "  will  find  few  believers  on  a 
descending  movement  of  prices.  Everybody  who 
loses  will  know  it  and  feel  it  at  once ;  a  good  many 
will  think  they  are  losing  even  if  they  are  not ;  and 
the  effect  will  naturally  be  to  repress  extravagance 
and  cultivate  thrift.  If  we  want  to  appreciate  the 
significance  of  this  we  may  look  to  France,  where  the 
frugal  habits  of  the  people  have  developed  a  recupera- 
tive power  which  is  the  amazement  of  the  world. 

2.  There  will  necessarily  be  a  more  general  knowl- 
edge of  what  is  taking  place  than  there  was  in  the 
case  of  inflation.  And  there  will  be,  moreover,  a 
general  assent  to  the  truth.  Hence,  the  men  who, 
in  the  period  of  inflation,  were  easily  victimized,  will 
be  in  position  to  defend  themselves  in  a  considerable 
measure.  The  merchants  and  manufacturers  will 
probably  get   the  best   of  it,   from   their  superior 


THE    BRIGHTER    SIDE.  1 99. 

knowledge  and  their  large  control  of  the  price  lever ; 
but  the  farmer  and  the  salaried  man,  the  skilled  me- 
chanic and  the  raw  laborer,  will  have  far  more  power 
of  resistance  and  chance  of  protection  than  under 
depreciation. 

3.  The  whole  extent  and  the  rate  of  the  change 
of  basis  will  be  positively  fixed  and  known  before- 
hand. This  will  tend  to  prevent  those  great  fluctua- 
tions which  are  caused  by  fear  and  uncertainty. 
Close  calculations  can  be  made  on  future  conditions  , 
the  per  centage  of  price  variation  for  risk  will  be 
narrow. 

4.  The  time  in  which  the  change  will  take  place 
will  be  definitely  limited.  Full  notice  will  give  op- 
portunity of  reducing  debt,  contracting  obligations, 
broadening  the  margin  of  real  capital.  This  is  obvi- 
ously a  matter  of  the  first  importance,  and,  in  con- 
nection with  other  considerations,  constitutes  an 
imperative  demand  for  the  fixing  of  a  date  for  re- 
sumption. Resumption  can  be  accomplished  without 
fixing  a  date,  but  business  would  suffer  more  than  it 
needs  to  in  the  process.  Fair  warning  is  a  simple 
matter  of  justice. 

5.  The  present  state  of  business  and  industry 
will  favor  the  process  of  changing  the  standard  of 
value.     This  being  a  point  of  much  dispute,  let  us 


■200  AN   ALPHABET   IN   FINANCE. 

consider  it  carefully.  Some  suggest  that  we  should 
not  force  resumption  now  ;  we  should  wait  until  we 
have  recovered  from  the  depression  of  recent  disas- 
ters. The  notion  is  plausible, — at  least  it  deludes 
many ;  but  it  has  not  so  much  reason  in  it  as  a  pro- 
test against  setting  a  fractured  arm  before  the  bone 
has  had  a  chance  to  knit.  Although  the  vast  de- 
struction of  the  war,  and  the  general  consumption  of 
capital  through  the  civilized  world  during  recent 
years,  is  a  great  factor  in  the  present  low  state  of 
industry  and  trade,  the  utter  prostration  of  business 
in  the  United  States  is  the  direct  result  of  paper 
money,  and  the  abuses,  waste,  imprudence,  specula- 
tion, extravagance  and  corruption  induced  by  it. 
Some  sort  of  recovery  is  possible  without  an  eradica- 
tion of  the  evil,  but  sound  health  is  not  possible. 
And  should  the  expected  revival  of  business  take 
place  before  anything  has  been  done  to  throw  out 
false  value-measure  and  re-adopt  the  true,  continued 
weakness  and  frequent  relapses  are  the  certain  pen- 
alties. But  further.  There  are  two  sources  of  loss 
in  a  change  of  the  value-measure:  debts  and  the 
difference  between  the  old  and  the  new  scale  of 
prices.  The  alteration  in  the  price  scale,  we  have 
seen,  can  be  discounted  and  provided  for  in  large 
measure,   especially  when   the   scale  is  descending. 


THE    BRIGHTER    SIDE.  201 

But  a  debt  must  be  paid  according  to  the  figures  in 
which  it  is  expressed.  The  time  for  a  change,  there- 
fore, is  that  time,  above  all  others,  when  debts  are 
few.  Such  a  time  there  was  at  the  close  of  the  war ; 
and  even  with  the  partial  inflation  that  then  vitiated 
trade,  had  a  steady  contraction  been  at  once  begun 
and  steadily  persisted  in,  the  paper,  upon  its  release 
from  war  employment,  would  not  have  been  left  out 
for  absorption  in  advancing  prices  ;  the  delusion  of 
growing  wealth  would  not  have  seized  the  people  ; 
the  era  of  wild  speculation  would  not  have  opened, 
and  the  demolition  of  capital  and  the  distresses 
which  are  popularly  referred  to  the  dreadful  account- 
ing day  of  1873  might  have  been  escaped  and 
warded  off  entirely.  The  country  would  naturally 
have  gone  soberly  to  work — as  did  France  after  her 
ruinous  conflict  with  Prussia — to  restore  and  make 
good  what  the  war  had  destroyed.  But  that  time 
not  taken  advantage  of,  another  time  is  the  present, 
— and  some  of  the  conditions  are  even  better.  Busi- 
ness is  reduced  to  exceedingly  narrow  limits,  credit  is 
curtailed,  and  prices  are  nearly  down  to  the  specie 
level.  The  very  disasters  whose  effects  yet  bear 
upon  us  have  made  our  opportunity.  The  crash  of 
'73  was  a  collapse  of  inflated  credit.  The  thousands 
of  failures  since  then  were  so  many  extinguishments 


202  AN   ALPHABET   IN   FINANCE, 

of  debt.  If  indeed  times  are  to  be  chosen  fof 
the  eradication  of  an  evil  which  constantly  injures 
and  destroys,  we.  could  not  choose  a  better  time 
than  this  very  year.  The  miller  repairs  his  dam 
when  the  stream  runs  low  and  grist  is  scarce.  Just 
so,  we  should  rebuild  the  value-measure  to  its  true 
level  when  trade  is  slack  and  the  tide  of  prices  at  the 
low-water  mark. 

6.  Resumption  measures  will  exert  a  favorable 
influence  on  business  by  affording  solid  ground  for 
present  trade  and  making  the  future  reasonably  cer- 
tain. It  would  be  tedious  to  enlarge  here  on  the 
encouragement  which  would  be  afforded  by  a  meas- 
ure of  value  certain  not  to  be  lowered  and  only  vary- 
ing by  steady  and  easily  followed  advances.  But  we 
may  take  notice  of  another  and  very  considerable 
matter,  which  is  frequently  overlooked  ;  and  that  is, 
that  the  advancing  value  of  *'  money  "  itself  would 
impel  capitalists  to  make  loans  at  a  rate  of  interest 
not  only  lowered  because  idle  capital  is  plentiful,  but 
lowered,  also,  because  the  rise  in  the  value  of  the 
"  dollar  "  would  be  discounted.  Let  it  be  established 
beyond  shadow  of  doubting,  that  the  "  dollar "  of 
to-day  will  mean  a  hundred  cents  in  gold  in  1879, 
and  capital  will  be  abundantly  supplied  at  low  rates 
for  all  legitimate  enterprises.     And  capital  will  be 


THE    BRIGHTER    SIDE.  20$ 

borrowed  for  no  other  than  legitimate  enterprises,  foi 
times  of  contraction  are  not  times  of  balloon  specu- 
lation. 

7.  Finally,  the  indications  of  the  present  are  that 
the  long  expected  upward  movement  of  general 
trade  is  at  hand.  The  people  have  awakened  from 
the  dream  of  amassing  riches  by  simply  tossing  com- 
modities from  the  right  to  the  left,  and  have  settled 
down  to  the  sober  labor  of  production.  The  tillers 
of  the  soil  are  reaping  full  crops,  and  out  of  the  fruit 
of  the  soil,  in  this  agricultural  country,  the  elements 
of  recovery  from  a  general  prostration  always  spring. 
If  the  supreme  condition  for  flourishing  business  be 
supplied, — the  condition,  namely,  that  every  man  be 
paid  by  just  measure — it  is  reasonable  to  hope  for 
such  rapid  and  steady  growth  of  business  that  the 
hardships  of  resumption  will  be  greatly  reduced  by 
the  increased  ability  to  withstand  them.  Low  prices 
are  easy  to  bear  in  connection  with  quick  sales  and 
rapid  profits. 

Incomplete  as  this  enumeration  is,  it  may  suffice 
for  the  purpose.  The  return  to  the  specie  basis  will 
entail  loss  to  many,  but  the  aggregate  loss  will  not 
be  comparable  to  that  caused  by  inflation,  and  not 
worth  weighing  an  instant  against  the  constant  loss 
and  chronic  debilitation  of  a  sort  of  commercial  chills 
and  fever. 


CHAPTER  XXX. 


THE  PRACTICAL  ISSUE, 


HE  question  Stands  clearly  before  us.  An 
inconvertible  currency  is  a  wrong  and  a 
curse  through  every  day  of  its  existence. 
We  cannot  stand  up  under  it  forever,  for  it 
would  finally  work  absolute  ruin.  Shall  we  rid  our- 
selves of  it  now,  when  even  our  misfortunes  offer  us 
help,  or  shall  we  bear  the  incubus  a  while  longer  and 
be  forced  to  a  more  bitter  and  costly  struggle  at  last  ? 
There  can  be  but  one  manly  answer  to  that  ques- 
tion. 

And  what  then  ?  Evidently  there  rests  upon  us, 
upon  all  who  have  a  definite  understanding  of  the 
situation  and  a  definite  conviction  of  what  should 
be  done,  an  obligation  to  set  the  question  aright 
before  the  whole  people,  that  the  whole  people  may 
give  the  manly  answer  and  carry  its  requirements 
into  effect.  In  a  democracy,  the  masses  control  di- 
rectly the  mechanical  force  ;  but  the  great  body  are 
intelligent  and  their  will  may  be  instructed,  while  the 


THE   PRACTICAL    ISSUE  205 

ignorant  are  at  least  capable  of  faith  in  intelligent 
direction.  If  the  governmental  machine  works 
destruction  instead  of  good,  it  is  largely  because  the 
higher  intelligence  of  the  country  is  confined — or 
rather,  has  chosen  to  confine  itself — to  exclusive  and 
separated  centers.  Especially  is  this  true  where 
action  respecting  such  a  matter  as  this  of  the  paper 
currency  is  concerned.  The  people  surely  would 
wish  to  do  the  right  thing  were  that  thing  clearly 
before  them ;  and  the  professional  politicians  never 
disobey  any  universal  demand,  but  rather  make  their 
swift  compliance  the  ground  for  further  favor.  To 
put  the  right  man  in  office  is  an  extremely  difficult 
task,  but  to  compel  the  men  who  are  put  in  to  take 
right  measures  on  any  large  and  obvious  question  of 
public  poHcy  (except  it  be  a  question  involving  their 
private  interests)  is  clearly  within  the  power  of  an 
enlightened  minority.  Their  task  will  not  be  finished 
in  a  day,  but  to-day  and  every  day  they  may  make 
certain  progress  toward  the  end. 

The  recognition  of  the  duty  of  leadership,  and 
the  direction  of  that  leadership  to  the  practical  pur- 
pose of  awakening  and  forming  public  opinion  are 
the  necessities.  It  is  not  enough  that  a  dozen  news- 
papers possess  perfect  wisdom  in  finance,  and  are 
able  to  dogmatize  to  their  readers  without  suspicion 


206  AN  ALPHABET  IN  FINANCE, 

of  flaw.  The  readers  themselves  should  possess  that 
wisdom,  that  they  may  perform  their  duties  as  citi- 
zens in  the  clear  light  of  conviction  and  not  among 
the  dubious  shadows  of  faith.  It  is  not  enough  that 
chambers  of  commerce  are  soHdly  for  hard  money 
the  retail  shops  can  vote  them  out  of  sight.  The 
sound  journals,  the  solid  members  of  the  chambers 
of  commerce,  the  organizations  and  the  men  every- 
where whose  opinions  are  built  on  understanding, 
must  really  lead :  the  leadership  must  be  of  that 
genuine  quality  which  first  seeks  intelligent  follow- 
ing, and  accepts  the  adherence  of  non-intelligence  as 
a  responsibility  of  guardianship. 

It  will  not  do,  as  many  seem  to  imagine,  to  rely 
upon  the  merely  traditional  faith  in  hard  money 
principles,  which  prevails  among  the  masses,  to 
work  a  release  from  the  present  financial  evils. 
Let  an  issue  be  squarely  presented,  and  traditional 
faith  might  induce  blind  voting  on  the  right  side. 
But  who  present  political  issues?  Not  necessarily 
the  most  intelligent  or  most  honest  leaders.  An 
issue  appears  in  a  political  conflict  as  the  but- 
come  of  deliberate  working  upon  the  public  mind, 
and  among  the  complexities  of  opinions,  preju- 
dices, feelings  and  circumstances ;  and  it  is  the  un- 
fortunate  lot   of  the   United  States  that  its  most 


THE    PRACTICAL    ISSUE.  20/ 

earnest  organizers  of  issues  are  those  who  make  poli- 
tics a  trade, — men  who  trouble  themselves  not  at  all 
about  true  statesmanship  or  the  correctness  of  pub- 
lic opinion,  but  find  it  more  to  their  purpose  to 
espouse  whatever  policy  will  carry  them  into  power, 
and  to  adapt  their  schemes  to  current  feelings  and 
ideas  rather  than  to  bring  those  feelings  and  ideas 
into  harmony  with  any  particular  political  doctrine. 
It  might  be  possible,  certainly,  for  a  skillful  leader 
to  juggle  a  true  issue  to  the  front,  just  as  the  trading 
poUtician  pushes  forward  a  fictitious  issue,  to  fur- 
ther his  "  party  "  plans ;  but  the  risk  of  defeat  at  the 
hands  of  trained  manipulators  would  be  great.  The 
only  wise,  as  well  as  the  plainly  right  course,  is  to 
work  honestly  upon  public  opinion  and  bring  about 
a  presentation  of  the  real  political  question  with  a 
backing  of  general  conviction. 

Nor  do  we  thus  reckon  without  the  host  of  the 
ignorant  voters.  The  "  opinions  "  of  the  Five  Points 
may  not  be  directly  changed  by  a  speech  of  Charles 
Francis  Adams;  but  those  opinions  are  the  reflex 
of  the  opinions  of  others,  through  higher  and  higher 
grades,  until  somewhere  they  touch  intelligence. 
The  intelligent  "bosses"  certainly  have  a  great 
power  in  forcing  the  acceptance  of  their  views  in 
opposition  to  views  not  mingled  with  whisky  and 


208  AlSr  ALPHABET  IN   FINANCE. 

eight-hour  dirt-picks.  But  they  do  not  carry  the 
entire  ignorant  vote,  and,  what  is  of  even  more  ac- 
count in  the  money  problem,  they  have  really  noth- 
ing to  gain  in  leading  the  ignorant  the  wrong  way 
on  a  question  where  private  interests  are  practically 
not  divided,  unless  they  can  thus  join  the  ignorant 
vote  to  their  party's  portion  of  the  intelligent  vote. 
The  trading  politician  has  no  care  for  the  higher 
questions  of  state,  in  themselves  ;  he  has  no  earthly 
objection  to  fighting  for  the  right,  if  the  right  makes 
as  well  for  the  party  victory  as  the  wrong. 

The  clear  duty,  therefore,  of  every  intelligent 
citizen,  from  the  distinguished  leader  of  masses  to 
the  modest  man  whose  word  has  weight  with  a 
neighbor,  is  to  obtain  a  conviction  himself  and  en- 
deavor to  impart  that  conviction,  honestly  and  ration- 
ally, to  every  man  in  the  circle  of  his  influence.  Nor 
should  the  great  journals  consider  that  the  elucida- 
tion of  elementary  truths  is  a  labor  beneath  their 
dignity.  No  truths  are  more  important  than  ele- 
mentary truths,  and  no  instruction  is  more  useful 
than  elementary  instruction  when  this  is  what  is 
needed.  The  people  of  the  United  States  of  all  peo- 
ples should  be  most  versed  in  the  science  of  money, 
and  at  the  present  moment  it  might  almost  seem 
that  they  are  the  most  ignorant.     The  A,  B,  C,  needs 


THE    PRACTICAL    ISSUE.  209 

to  be  taught  through  the  length  and  breadth  of  the 
land. 

Nor  will  the  work  be  done,  nor  the  necessity  of 
popular  comprehension,  have  passed  away,  when  defi- 
nite measures  have  been  adopted  to  bring  about 
resumption  at  the  time  pledged.  Any  process  of 
resumption  means  loss  and  suffering.  The  people 
must  be  forewarned  of  that,  and  be  prepared  to  meet 
the  inevitable.  As  soon  as  the  measures  for  resump- 
tion begin  to  take  effect,  there  will  be  outcries  of  in- 
justice and  demands  for  relief.  And  then  will  be 
the  greatest  need  of  a  general  intelligent  conviction. 
The  lack  of  it,  indeed,  may  be  the  cause  of  failure 
after  the  cost  of  resumption  has  been  almost  com- 
pletely paid.  The  powers  that  make  and  break  laws 
will  be  subjected  to  a  pressure  which  only  a  most 
palpable  and  unyielding  public  opinion  may  nerve 
them  to  withstand.  They  will  be  assaulted  by  the 
clamor  of  the  paper-money  visionaries,  by  the  re- 
monstrances of  those  whom  contraction  hampers,  by 
the  pleadings  of  the  unhappy  few  whose  sacrifice 
is  as  unavoidable  as  bloodshed  in  war,  and  by  the 
subtle  argument  of  schemers  who  fatten  on  the 
financial  follies  of  the  government.  Nothing  will  be 
a  reliance  then,  but  a  clear,  solid  conviction,  firmly 
held  by  the  voting  mass,  and  insisted  upon  without 


2IO  AN  ALPHABET   IN   FINANCE. 

shadow  of  compromise.  The  process  of  resumption 
must  be  carried  out  in  broad  daylight,  with  the  de- 
liberate consent  and  the  deliberate  will  of  the  whole 
people,  that  no  Congressman,  and  no  public  officer, 
either  from  weakness  or  stupidity  or  venality,  will 
dare  to  trifle  or  to  falter,  but  that  every  man,  to 
whom  any  portion  of  the  responsibility  is  committed, 
will  be  compelled  to  push  the  work  to  its  conclusion 
on  the  peril  of  his  public  life. 


SUPPLEMENTARY  CHAPTER. 
(Prepared  for  the  second  edition^ 

INCE  the  publication  of  the  first  edition  of 
this  book,  the  conditions  of  the  currency 
problem  have  been  materially  changed. 
There  has  been  no  change,  however,  in  prin- 
ciples. The  developments  of  the  past  four  years 
have  been  in  strict  atcord  with  those  laws  of  money 
which  the  master  economists  have  enunciated,  and 
which  these  pages  have  striven  to  elucidate.  The 
developments  to  come  will  proceed  under  the  same 
rule,  and  it  is  as  much  a  part  of  the  citizen's  duty 
to-day  as  ever  to  have  an  intelligent  conviction  as  to 
the  policies  which  ought  or  ought  not  to  receive  his 
support. 

It  is  true  the  advocates  of  the  "  do  nothing " 
policy  are  as  complacent  now  as  they  were  in  1876. 
There  are  always  those  who  urge  letting  things  take 
care  of  themselves,  and  who,  when  things  are  never- 


2 1 2  AN  ALP H ABE T  IN  FINANCE. 

theless  cared  for,  claim  great  credit  for  their  saga- 
cious inactivity.  "  Things  will  come  out  right,  if 
you  will  only  let  them  alone."  This  class  of  philos- 
ophers, in  reference  to  the  money  problem,  make 
two  mistakes :  first,  things  have  not  come  out  right ; 
and,  second,  things  have  not  been  let  alone. 

A  certain  kind  of  resumption  has  been  achieved, 
— unsatisfactory  and  unsafe ;  but  even  this,  not  by 
allowing  matters  to  drift,  neither  by  disregarding  the 
teachings  of  the  world's  experience.  We  have  had 
a  strong  man  at  the  head  of  the  Treasury,  and  he  has 
been  clothed  with  enormous  powers,  which  he  has 
used  with  most  positive  force,  and  with  remarkable 
judgment.  He  did  not  wait  for  the  mysterious  "  Bal- 
ance of  Trade"  to  flood  the  country  with  gold;  he 
accumulated  it  steadily  from  the  revenues,  and  when 
it  did  not  pile  up  fast  enough,  he  went  into  the 
market  and  bought  it.  In  1877  he  sold  fifteen  mil- 
lions of  four-and-a-halfs,  and  twenty-five  millions  of 
fours,  for  gold.  In  1878  he  disposed  of  fifty  millions 
of  four-and-a-halfs.  By  the  first  of  January,  1879,  ^^ 
had  accumulated  a  resumption  fund  of  $135,382,639, 
gold,  and  $32,476,095,  silver.  His  efforts  were  greatly 
aided  by  the  banks,  especially  of  New  York  and 
Boston.  The  Government  was,  in  the  person  of  the 
Assistant  Treasurer,  made  a  member  of  the  Clearing 


THE  PRESENT  SITU  A  TION.  2 1 3 

House  in  New  York,  to  the  great  economy  of  gold  in 
the  operations  of  the  Treasury.  The  banks  also 
abolished  special  gold  deposits.  The  National  Banks 
restricted  and  reduced  their  note  circulation.  In 
many  effective  ways  the  banks  and  bankers  of  the 
country  aided  in  raising  the  greenback  to  par,  and  in 
protecting  the  Treasury  from  gold  demands. 

The  plan  the  Secretary  of  the  Treasury  pursued 
was  not  that  advocated  by  the  "  theorists."  But 
those  who  conclude  that  he  set  at  naught  the  notions 
of  the  economists,  do  so  without  warrant.  The  chief 
of  these  notions,  in  this  regard,  was,  that  the  green- 
back could  not  be  brought  to  par  without  con- 
traction. Very  well ;  we  have  had  contraction. 
This  statement  seems  to  some  surprising.  Even  the 
Director  of  the  Mint  assumes  that  there  has  been  no 
contraction  worth  mentioning.    What  are  the  facts  ? 

In  January,  1875,  when  the  Resumption  Act  was 
passed,  the  amount  of  legal  tenders  outstanding  was 
$382,000,000.  On  the  1st  of  January,  1879,  the 
amount  was  $346,681,016.    Here  is  a  contraction  of 

$35,3i9»984. 

On  the  1st  of  January,  1875,  the  amount  of  the 
National  Bank  circulation  was  $354,128,250.  On  the 
1st  of  January,  1879,  the  amount  was  $323,791,674. 
Here  is  a  contraction  of  $30,336,576. 


214  A^  ALP H ABE  T  IN  FINANCE, 

The  total  positive  contraction  of  paper  in  the  four 
years  was  $65,656,560. 

But  what  may  be  called  a  negative  contraction  is 
to  be  reckoned  for  the  same  period.  Business  was 
increasing,  the  uses  for  money  were  multiplying ;  but 
the  supply  of  paper  money  was  not  enlarging  in  pro- 
portion ;  on  the  contrary,  it  was  actually  diminishing. 
If  we  take  the  statistics  of  our  foreign  commerce  as 
an  index  of  our  general  business  (certainly,  under  our 
tariff  system,  a  much  reduced  measure)  we  get  this 
result:  The  combined  imports  and  exports  of  1875 
sum  to  $1,046,000,000;  those  of  1879  ^^  $1,156,000,- 
000, — an  increase  of  more  than  ten  per  cent.  If, 
therefore,  the  needs  of  trade  were  met  in  1875  by 
$736,000,000  in  greenbacks  and  bank  notes,  in  1879 
there  would  probably  be  a  demand  for  ten  per  cent, 
more,  or  $809,000,000.  The  paper  being  at  this  date 
only  $670,000,000,  we  discover  a  virtual  contraction 
of  about  $140,000,000. 

This  mode  of  figuring  is  only  employed  to  illus- 
trate. It  is  not  really  necessary  to  make  such  rude 
estimates.  As  was  shown  in  Chapters  VI  and  XIII, 
provided  there  be  no  interferences,  the  "wants  of 
trade  "  find  their  own  means  of  satisfaction.  In  No- 
vember, 1879,  ^s  a  matter  of  fact,  trade  "needed" 
and  obtained  a  circulating  medium  as  follows : 


THE  PRESENT  SITU  A  TION,  2 1 5 

Treasury  notes   outstanding $346,681,016 

National  Bank  notes  outstanding 337,181,418 

Gold  in  Treasury  (less  certificates  held 

by  banks) 1 57,960,193 

Silver  in  Treasury 50,078,620 

Coin   in  banks 42,173,731 

Coin  held  by  the  people  (estimate   of 

Director  of  Mint) 231,478,515 

Total $1,165,553,493 

Allowing  for  the  absence  of  Government  reserves 
under  the  suspension  regime,  and  subtracting,  there- 
fore, the  gold  and  silver  in  the  Treasury,  we  have  an 
active  circulation  of  $957,514,680,  of  which  only 
$670,000,000  is  paper.  The  virtual  contraction  since 
1875  may  be  properly  put  at  $287,000,000,  or  thirty 
per  cent.  In  a  volume  of  $957,000,000,  paper  to  the 
amount  of  $670,000,000  may  easily  stand  at  par 
(Chap.  XVI). 

The  case  for  the  "  theorists  "  does  not  end  here. 
We  have  a  sort  of  resumption,  it  is  true,  but  it  is  liable 
to  continual  attacks,  and  how  long  it  will  last  he 
would  be  a  rash  man  who  should  predict.  If  Secre- 
tary Sherman's  achievements  have  shown  anything, 
they  have  shown  that  the  greenbacks  could  have  been 
retired  and  cancelled  with  comparative  ease.     This 


2 1 6  AN  A  LP  HA  BE  T  IN  FINANCE. 

was  what  the  "theorists"  demanded,  and  had  this 
been  done  there  would  have  been  no  difficulties  to-day 
as  to  the  paper  circulation.  As  it  is,  we  have  a  paper 
circulation  of  $670,000,000  depending  practically  for 
convertibility  on  the  Secretary  of  the  National  Treas- 
ury. And  this,  too,  notwithstanding  the  fact  that  the 
National  Bank  circulation  is  outside  of  his  control. 
The  chief  dangers  in  this  state  of  affairs  are  those  indi- 
cated in  Chapter  XIV.  It  is  unsafe  in  the  extreme  to 
put  such  a  responsibility  upon  an  officer  of  the  Gov- 
ernment, hedged  about  as  he  is  by  necessary  and 
unnecessary  restrictions,  subjected  at  all  times  to  the 
pressure  of  public  opinion,  and  at  all  times  liable  to 
Congressional  interference,  or  to  abrupt  dismissal 
with  the  demolition  of  all  his  plans. 

It  is  fair  to  the  reader  to  say  at  this  point  that  I 
do  not  dwell  on  the  dangers  which  seem  to  be  placed 
most  prominently  in  the  current  discussions,  for  the 
reason  that  I  do  not  agree  in  regarding  these  as  all 
important.  The  failure  of  the  crops  abroad,  and  the 
consequent  heavy  export  of  our  abundance,  unques- 
tionably aided  in  our  resumption  measures,  but  only 
because  we,  by  positive  action,  took  advantage  of  the 
circumstances.  The  era  of  low  prices,  caused  at  once 
by  the  richness  of  our  harvests  and  the  disasters 
among  our  manufacturing  industries,  gave  us  excep- 


THE  PRESENT  SITU  A  TION, 


217 


tional  opportunities  for  the  accumulation  of  specie, 
and  we  made  use  of  them  (Chapter  VII).  But  should 
these  conditions  be  reversed — should  the  crops  fail 
here  and  the  abundance  appear  abroad,  should  re- 
turning prosperity  bring  a  return  of  high  prices — we 
shall  not  lose  our  gold  if  the  banks  and  the  National 
Treasury  elect  to  keep  it  (Chap.  VII). 

There  is,  however,  a  question  here  in  connection 
with  the  specie  reserve  of  the  country  as  a  whole 
which  I  have  not  seen  discussed.  The  National 
Banks  are  not  obliged  to  redeem  in  gold  so  long  as 
greenbacks  are  at  hand.  It  is  within  the  possibili- 
ties that,  using  the  greenbacks  as  their  reserve,  they 
might  expand  so  heavily  on  a  rising  market  as  to 
strain  the  general  specie  reserve  to  the  snapping 
point.  Nor  is  it  a  sufficient  answer  to  say  that  the 
greenbacks  being  convertible,  the  bank  notes  become 
convertible  also.  If  the  banks  depend  for  specie  on 
the  Treasury,  the  Treasury  reserve  becomes  only  a 
reserve  of  a  reserve. 

But,  after  all,  the  great  danger  in  the  situation  is 

the  presence  of  a  Government  official  as  the  ruler  of 

our  monetary  destinies.     Abolish  that  danger,  and 

all  others  in  connection  with  the  paper  circulation 

are  abolished  with  it.     This  can  only  be  done  by  the 

complete  cancellation  of  the  greenback. 
10 


2 1 8  AN  ALP H ABE  T  IN  FINANCE, 

A  few  words  now  as  to  the  silver  experiment. 

Here,  also,  we  find  the  sages  of  "  American  sys- 
tems "  of  finance  enjoying  their  peculiar  sensations 
of  triumph.  For  two  years  they  have  been  heaping 
scorn  on  the  "  doctrinaires "  who  predicted  evil  to 
come  as  the  consequence  of  the  proposed  re-estab- 
lishment of  the  "Dollar  of  our  Fathers."  The 
mistake  they  make  here  is  best  revealed  by  noting  a 
fact  which  has  apparently  escaped  their  observation. 
Namely,  this :  The  silver  law  against  which  the 
"  doctrinaires  "  contended  was  not  passed.  A  simple 
reply,  biit  none  the  less  true.  The  silver  bill  from 
which  were  expected  such  destructive  results  as  are 
described  in  Chapter  XXVII,  did,  indeed,  get 
through  the  House,  Nov.  5,  1877,  by  the  disgrace- 
ful  vote  of  163  to  34 ;  but  it  was  killed  in  the 
Senate. 

What  was  that  bill  ?  It  was  a  bill  for  the  free 
coinage  of  silver,  412I  grains  to  the  dollar.  Any  man 
owning  silver  was  to  be  privileged  to  take  it  to  the 
mint  and  have  it  manufactured  into  legal  dollars, 
each  dollar  coin  containing  only  eighty  cents'  worth 
of  metal.  The  whole  product  of  the  bonanza  mines 
was  to  be  turned  on  to  the  country  for  twenty-five  per 
cent,  more  than  it  was  worth.  Germany  was  to  be  al- 
lowed to  unload  through  the  same  channel.   And  lest 


THE  PRESENT  SITUATION.  219 

the  people  should  rebel  and  check  the  game  by  mark- 
ing up  the  prices  of  their  commodities,  the  proposition 
was  audaciously  made  to  compel  the  issue  of  money 
certificates  for  silver  bullion  deposited :  the  process 
of  coining  was  too  slow ;  the  silver  men  wanted  to 
leap  into  the  market  with  their  spurious  dollars 
before  any  rise  of  prices  could  occur.  This  was 
the  bill  which  excited  the  indignation  of  the 
economists.  But  this  was  the  bill  which  did  not  go 
through. 

The  bill  which  did  go  through  (Feb.  28,  1878) 
was  quite  another  matter.  Pernicious  as  it  is,  the 
actual  silver  law  bears  no  comparison  in  viciousness 
with  the  proposals  of  the  Silver  Ring.  The  free  coin- 
age element  was  left  out,  and  the  amount  to  be 
coined  was  given  to  the  discretion  of  the  Secretary 
of  the  Treasury, — with  the  restriction,  however,  that 
he  must  coin  at  least  two  millions  a  month.  The 
conditions  were  thus  completely  changed.  The 
twenty-five  percent,  profit  on  the  manufacture  of  sil- 
ver dollars  went  to  the  Government.  Private  greed 
was  not  stimulated,  neither  permitted  to  inflate  the 
currency  for  its  own  satisfaction.  Silver  bullion  was 
purchased  at  its  market  value,  and  coined  only  on 
the  order  of  the  Secretary  of  the  Treasury.  Fur- 
thermore, Mr.  Sherman  did  not  display  that  keen 


2  20  ^^  ALP  HA  BE  T  IN  FIN  A  NCR. 

affection  for  the  "  Dollar  of  the  Fathers "  which 
such  papers  as  the  Chicago  Tribune  professed,  and 
coined  no  more  than  he  was  positively  required  to 
coin.  If  the  reader  will  study  the  principles  out- 
lined in  Chapter  XXII,  he  will  perceive  that  the 
effect  of  these  several  restrictions  was  to  make  the 
silver  dollar  virtually  a  subsidiary  coin.  It  became 
simply  a  "token  "  for  a  dollar;  able  to  stand  at  par 
so  long  as  its  convertibility  was  maintained  by  re- 
strictions upon  its  issue. 

The  consequences  which  were  predicted  as  certain 
to  follow  an  entirely  different  law  did  not  of  course 
follow  this.  The  "doctrinaires'-  see  no  reason  as 
yet  to  consider  themselves  annihilated. 

But  the  law  as  it  stands  is  a  bad  one.  It  does  not 
permit  the  flooding  of  the  country  with  depreciated 
coin  by  private  individuals  under  the  stimulus  of 
enormous  profits,  but  it  does  provide  for,  and  indeed 
compel,  the  gradual  introduction  of  such  depreciated 
coin  by  the  Government  itself. 

The  coinage  must  go  on  at  the  rate  of  two  millions 
a  month.  The  people  do  not  want  this  **  Dollar  of 
the  Fathers."  It  is  too  weighty  for  use ;  it  is  not 
weighty  enough  for  export.  Its  true  value  is  but 
eighty-seven  cents  ;  its  "  token  "  value  is  no  greater 
than  that  of  two  "  halves,"  and  the  halves  are  the 


THE  PRESENT  SITUATION.  221 

more  convenient.  All  the  powers  of  the  Treasury 
have  been  invoked  to  get  the  Dollar  into  the  hands 
of  the  people ;  but,  though  disbursed  at  most  dis- 
tant points,  it  flies  back  straightway  to  the  Custom 
House,  and  thence  to  the  overflowing  vaults  of  the 
Treasury.  The  coinage  goes  on  at  two  millions  a 
month.  What  will  be  the  end  of  this  extraordinary 
policy  ?  The  coin  passes  now  by  the  discretion  of 
the  Secretary  into  the  reserve  fund  of  the  Treasury. 
When  the  capacity  of  that  fund  is  exhausted,  silver 
must  be  paid  out  indiscriminately  for  all  Tabilities  of 
the  Government.  The  ultimate  result  will  be  the 
crowding  out  of  gold,  and  the  lowering  of  the  green- 
backs and  National  Bank  notes  to  the  silver  basis, — 
with  all  the  consequences  to  business  and  credit 
which  follow  a  reduction  of  the  standard  of  value 
from  100  to  87. 

What  those  consequences  may  be  under  the  pres- 
ent conditions,  no  one  can  foretell.  We  know  they 
will  be  destructive  to  the  national  credit,  and  to 
business  interests.  We  are  certain  they  will  carry 
loss  to  the  wage-earning  class.  We  are  sure  they 
will  effect  a  confiscation  of  capital.  That  they  might 
snap  the  bonds  holding  us  even  to  silver  resumption, 
and  launch  us  again  on  the  sea  of  paper  money,  is 
by  no  means  impossible. 


222  AN  ALPHABET  IN  FINANCE. 

But  there  is  no  need  to  waste  ingenuity  in  sur- 
mises. We  know  that  we  are  throwing  dice  with 
fortune  so  long  as  we  keep  the  currency  in  its  pres- 
ent disorganized  state.  The  thing  to  do  is  to  set  it 
right. 

Put  an  end  to  this  silver  folly.  Redeem  the 
greenbacks. 

New  York,  August^  1880. 


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